Mortgage Tips for Beginners
As you consider buying a home and learn more and more about the process you may find that it can become overwhelming. You are investing hundreds of thousands of dollars into your future with the majority of it being borrowed money. One of the best things a person can do when looking to buy a home is to shop several lenders and obtain the best deal possible. A mortgage is just like buying anything else, it is a product and you can get different deals at different places so take the time to check them out, you can save thousands of dollars by doing so.
Where to Gather Mortgage Information
There are several places you can get information on obtaining a home mortgage. Thrift institutions, commercial banks, credit unions, and mortgage companies are the most common places. Different lenders may quote you different prices, so be sure to contact several to ensure you get the best deal.
What About Mortgage Brokers
Sometimes it can be difficult to tell if you are dealing with the lender directly or through a mortgage broker. Brokers act as middlemen and help arrange the lending of funds rather than lending the money directly. Typically, they contact several lenders on your behalf and provide you the options, of course for a fee. Remember that mortgage brokers aren’t required to find the best deal unless you have contracted with them to act as your agent.
Mortgage Costs
Beside having to pay back the principal of the loan there are going to be additional costs to consider when comparing mortgage products. As you contact the different lenders you want to compare the same information. The following information is important to get from each broker or lender:
Interest Rates
While meeting with each lender ask them for a list of their current mortgage interests rates and if the rates are the lowest for the day or week. You will also need to know if the rates are adjustable (rate changes over time) or fixed (rate stays the same). If the rate being quoted is an adjustable rate, inquire to how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
Find out what the APR (annual percentage rate) is for the mortgage product. The APR takes into account the interest rate, points, fees, and additional charges for borrowing funds for a home purchase and is expressed in a yearly rate.
Points
Points are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay the lower the rate. To better understand what you will be paying for points ask that they are quoted in dollar amounts instead of just a number of points.
Mortgage Fees
There are a number of fees associated with a home mortgage. Every lender should be able to provide you with a list of fees and what they will cost. Remember that many of these fees are negotiable. Some fees are paid when you apply for the home loan while others are paid at closing. You may also be able to borrow the money to pay the fees, however doing so will increase the loan amount and the total cost of the loan.
Make inquiries to what each fee includes and ask for an explanation of any fee you don’t understand.
Down Payments for a Home
When you purchase a home the more money you have for a down payment the less you will have to borrow from a lender. Some lenders require 20% of the home’s purchase price as a down payment. Luckily, there are many options available to bring that number down. Sometimes you can get into a home with as little as 5% down. If you are unable to put 20% down the lender may require you to carry private mortgage insurance that protects the lender in case the homebuyer is unable to repay the loan.
Ask about the lender’s requirement for a down payment and see if the lender offers any special programs. If PMI is required, ask how much it costs and how it will affect your monthly payment.
Shop and Compare Mortgage Offers
Once you have contacted several lenders you should compare the information and negotiate the best deal you can. It is okay to let lenders know that you are shopping several institutions looking for the best deal. Once you are satisfied with the terms of a particular lender you may want to get a written lock-in from them. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of point to be paid.
Fair Lending
The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicant in any aspect of a credit transaction on the basis of color, race, religion, national origin, sex, marital status, age, etc…