What To Look At When Shopping For A Mortgage

What to look for when shopping for a Home mortgage. This article will help you look for the best home loan for you. Get educated about loan types, lenders, fees, interest rates and more.

Before you start shopping for a new home you should begin your financial search for a mortgage. Get educated about loan types and lenders in your area so you will be prepared when you find your dream home. Make sure you find a lender or mortgage broker that you can trust; getting a home mortgage will have a large impact on your financial future. Some of the things you need to look for when shopping for a home mortgage are; what types of loans are available, the length of the loan, the down payment required, points, fees, interest rates, insurance etc. You can check your local newspaper to see what kind of loans and interest rates are available in your area and then find a mortgage broker or bank you want to work with.

It is always a good idea to know what type of loan you want and how much you can qualify for before you start looking for a house. You will know exactly what size home loan you can qualify for and you won't be wasting your time and getting disappointed if you can't get the home you want. Since you will be working with a lender prior to looking for a home you can get a prequalification letter from them that you can bring with you when you make an offer on a home. With this prequalification letter the home seller will know they won't be wasting their time if they sell the house to you because you have already done your "home" work.

There are two types of home mortgage loans; privately funded loans and government funded loans. Federal loans are funded through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA loans). Private loans are also called conventional mortgages and are funded through private banks and institutions. FHA loans and VA loans have to follow federal laws. Sometimes these loans are more attractive because you can have a smaller down payment. FHA loans and VA loans are generally more affordable for low income earners and first time buyers. But sometimes these loans are more restrictive and can only be used for homes that are below a certain price. Of course only a veteran of the United States military can qualify for a veteran or VA loan. Conventional or private mortgages many times have lower interest rates, more options and creative methods of lending which can result in getting what you need.



One of most important factors in getting a home loan is the interest rate. The interest rate is described as base rate and the annual percentage rate or APR. The APR is the actual interest rate you will be paying over the life of your loan with points and fees included. Interest rates change from day to day and sometimes even hour to hour and are based on the federal lending rate. Loans can have fixed interest rate that will stay the same for the life of the loan (usually 30 years), or have an adjustable rate which can go up in increments over the life of the loan. Adjustable rates are usually referred to as ARMs or adjustable rate mortgages. They are also called variable rate loans. In this type of loan you can usually start out with a very low interest rate so that you can qualify for a larger house payment and then in 1 to 5 years as the interest rates go up your house payment will also go up. On the positive side, if interest rates go down so will your house payment. These are great loans for some buyers, but make sure you pay attention to how much the interest rate will go up and how often, make sure there is a cap or a stopping place where the interest rates can't go up past. Read the Truth in Lending booklet that you will get when you apply for the loan as it will disclose all required information about the loan. There are also some loans that have a fixed interest rate for 10 or 15 years and then a balloon payment at the end. A balloon payment is a large payment to pay off the loan. There are also the new interest only loans. These interest only loans have become attractive because studies show that the average home owner only stays in his home for 5 to 7 years and then moves to a bigger home. Interest only loans are also nice during times when homes are appreciating or going up in value. You can make payments on the loan that include only the interest, not the principal, and therefore your payments will be smaller and you can qualify for a bigger loan. After you have lived in the home for 5 years, if the housing markets has been going up, you will have equity in your home and you can trade up to another house. Interest only loans can be risky if the housing market is not increasing. Check the history of the housing market in your area before getting an interest only loan. You need to feel financially comfortable in any loan you get, therefore, do your homework.

Once you have researched loans and interest rates you will want to "lock in" your interest rate. Locking in your interest rate simply means that you can keep the rate where it is at once you lock in. If rates go up before your loan closes you will get the old lower interest rate not the new higher rate. You usually have to have a home that you have made an offer on in order to lock in your rate. Sometimes there is a fee to lock in the interest rate, so ask your lender. In a volatile financial climate or if you have heard interest rates will be going up, it makes sense to lock in your rate at the beginning of the loan process.

When you shop for a loan you should pay attention to the lender fees and points. A point is the dollar amount you will be charged, which is usually 1 percent of the loan amount, to a lender. Points can buy down, or lower the interest rate. Sometimes it makes sense to pay a few points higher to get a lower interest rate that will add up over the 30 year life of your loan.

One of the most important questions you should ask your lender is if there is a prepayment penalty in your loan. A prepayment penalty is a high fee that you are charged if you pay your loan off early. If you plan on moving and selling your home before the loan is paid off you would be charged a stiff penalty. Do not get a loan with a prepayment penalty.

Lenders must disclose settlement costs to you during the process. These settlement costs are for certain services such as; mortgage insurance, title insurance a new survey, credit reports, appraisals, document preparation, underwriting, application fees, termite reports, and flood certifications. The most costly of these settlement costs can be the mortgage insurance or PMI (Private Mortgage Insurance). This is the amount you will be charged for the life of your loan if you were unable to put a 20 percent down payment on your home. Usually it is attached to your payment each month, sometimes it is a lump sum put on the loan at closing cost. Lenders require this insurance on home sales they believe are risky. Sometimes you can get the mortgage insurance taken off the loan if your home appraises higher than the selling price after living in it a few years, in other words if you have more equity in your home after a few years that equals 20 percent they can take off the PMI payment. Make sure the loan has the capability to have the PMI removed. Just a note do not confuse mortgage insurance with insurance that pays the home off if you die, PMI is not life insurance on your home, it is risk insurance for the lender and does not benefit the home owner at all.

Do your research and get educated before you start looking for a home and you will be able to make good financial decisions. Read the Truth in Lending booklet that you will get when you apply for the loan as it will disclose all required information about the loan.

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