Top 7 Steps To Take When Choosing A Home Loan

Top 7 Steps To Take When Choosing A Home Loan



Your home loan is​ almost as​ important as​ the​ home you​ choose. Small changes on​ paper – ½% here,​ ½% there – can mean BIG changes to​ your monthly payment,​ and thousands of​ dollars over the​ lifetime of​ your loan. Today,​ it​ seems as​ though there are thousands of​ mortgage brokers & lenders in​ every market – and there are! Unless your brother,​ sister,​ Dad,​ or​ best friend are a​ mortgage broker (and sometimes even when they are) your lender might not always be the​ most competent,​ or​ have your best interests in​ mind. Here are 7 easy steps to​ take when looking for a​ home loan.

1) it​ Pays to​ Shop!

There are thousands of​ mortgage brokers in​ any market,​ and hundreds of​ loan programs that each broker will usually have access to. Each loan program fills a​ niche – a​ special financial situation that you​ may or​ may not belong to. High credit score with no verifiable income,​ mediocre credit score with verifiable income,​ high credit score without rental history,​ etc… the​ list goes on​ and on! you​ need to​ make sure that you​ find a​ mortgage broker who knows their loan programs,​ and can find you​ the​ best program that matches your unique financial situation. the​ more brokers that you​ talk to,​ the​ more loan programs that you​ will expose yourself to​ – and the​ better chance that you’ll find the​ perfect fit,​ and rate.

2) Pick out the​ TERMS of​ the​ loan you​ want BEFORE you​ compare rates.

There are many different terms of​ home loans. the​ first is​ the​ length of​ the​ loan – 30 Year,​ 40 Year,​ even 50 Year – and sometimes Interest Only! an​ Interest Only loan is​ a​ loan that you​ never have to​ pay off – you​ only have to​ make the​ monthly interest payments. the​ second is​ the​ length of​ the​ rate – you​ can have a​ guaranteed rate for 30 years,​ or​ any period from 1 to​ 7 years. Loans with a​ guaranteed rate for 1-7 years are called Adjustable Rate Mortgages (ARMs) because the​ rate will adjust up or​ down with the​ market after the​ guaranteed rate period is​ over. the​ safest loan is​ a​ 30-year fixed rate mortgage. you​ should also be aware of​ a​ pre-payment penalty – this is​ a​ pretty substantial penalty should you​ decide to​ refinance the​ loan or​ sell the​ house within a​ certain period of​ time. One to​ two year pre-payment penalties are common,​ and sometimes the​ loan will have a​ longer pre-payment penalty.

3) Shop the​ rate and closing costs – and make sure you’re comparing apples to​ apples.

Now that you​ know the​ terms you​ want,​ it’s time to​ shop the​ rate. the​ best idea is​ to​ have one mortgage broker pull a​ tri-merge credit report and then ask that broker for a​ copy of​ the​ credit report. While it’s not supposed to​ “ding your credit” every time a​ mortgage broker requests it,​ it​ sometimes does. Have a​ copy of​ your credit report,​ a​ copy of​ your bank statements,​ and a​ copy of​ your tax returns with you​ when you​ visit with any mortgage broker,​ and know the​ price range you’re shopping for. Answer all questions honestly and tell the​ broker exactly what terms you​ want in​ the​ loan. the​ mortgage broker should then provide you​ with a​ Good Faith Estimate (GFE) based on​ your request. if​ you’d like to,​ you​ can ask for two GFE’s – ask for one with minimal closing costs and another with the​ standard closing costs. Typically,​ a​ mortgage broker can get you​ a​ slightly higher interest rate with fewer closing costs.

4) Compare your Good Faith Estimates’ Total Monthly Payment.

Your good faith estimate will have an​ estimate of​ your TOTAL monthly payment. the​ easiest thing to​ do would be to​ compare the​ GFEs’ Total Monthly Payment and choose the​ lowest. However,​ you​ have to​ remember that the​ Mortgage Brokers are each estimating what your hazard insurance,​ taxes,​ Homeowner’s Association Dues will be – which they have no control over. Some Mortgage Brokers underestimate these fees in​ order to​ make their GFEs look more attractive,​ and then explain away the​ higher monthly payment because “they have no control over those fees.” Another easy way would be comparing interest rate. However,​ sometimes loans are broken up into 80/20 loans – the​ 80% loan at​ a​ lower interest rate and the​ 20% loan at​ a​ slightly higher interest rate – but with no Mortgage Insurance. Likewise,​ some loans are one 100% loan with Mortgage Insurance. to​ compare apples to​ apples with regards to​ the​ Total Monthly Payment,​ take the​ line item costs that are associated with the​ loan and compare only those. These costs will be Principal,​ Interest,​ and Mortgage Insurance (or PMI). Whichever loan program has the​ lowest Principal,​ Interest,​ and Mortgage Insurance is​ going to​ be the​ best monthly payment for you.

5) Compare Your Good Faith Estimates’ Closing Costs.

Just like the​ total monthly payment,​ your Good Faith Estimates will have estimates of​ the​ Total Closing Costs involved with purchasing the​ house. And,​ just like Total Monthly Payment,​ some Mortgage Brokers will underestimate these costs in​ order to​ make their GFEs look more attractive,​ and then explain away at​ closing. in​ order to​ truly compare “apples to​ apples” with closing costs,​ you​ need to​ look at​ the​ closing costs associated with the​ loan. Now,​ this can get rather confusing because Mortgage Brokers & Lenders LOVE to​ give different names to​ different fees. the​ bottom line is,​ if​ it’s associated with the​ loan,​ then it’s something that they potentially have control over. in​ Texas,​ take all the​ fees in​ the​ “800” lines of​ your GFE – they should be labeled “Items Payable in​ Connection With Loan” – and add them together. Compare all of​ the​ GFEs’ “Items Payable in​ Connection With Loan” charges and pick out which program has the​ lowest fees.

6) Take Into Account Closing Costs AND Rate.

What happens if​ one loan has higher closing costs but a​ lower rate? Another program looks like it​ has much cheaper closing costs but a​ higher rate? It’s time to​ take into account how long the​ cheaper monthly payment will take to​ “make up” the​ higher closing costs. Does one program have $100/month lower payments with $1000 higher in​ closing costs? it​ would take 10 months to​ “make up” the​ higher closing costs – I would suggest taking the​ lower payment. Does one program have $10/month lower payments with $1000 higher in​ closing costs? it​ would take 100 months to​ “make up” that difference,​ and it’s probably not worth it​ to​ take the​ cheaper rate.

7) Lock Your Rate!!!

Rates DO fluctuate and are subject to​ change – until you​ lock your rate. you​ will typically want to​ lock your rate 30-45 days before closing. if​ you​ try to​ lock longer than that,​ the​ lender will typically penalize your rate. the​ bottom line is,​ after you’ve made this difficult decision,​ make sure that you​ lock in​ your choice!

The decision to​ purchase a​ home be rather intimidating and can seem very complex. the​ decision on​ your mortgage can be just as​ intimidating,​ and is​ just as​ important as​ the​ home you​ choose. if​ you​ take a​ step back and look at​ the​ situation in​ a​ systematic way,​ you​ will feel confident that you​ have made the​ best decision – and you​ will have!




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