Key Questions to Ask Yourself and Lenders When Shopping for a Mortgage.
Traditional Fixed Rate Mortgage? Graduated-Payment Mortgage? Adjustable Rate Mortgage? FHA Mortgage? Two-Step Mortgage? There are a lot of different loan programs, terms, and options for you when shopping for the right mortgage program and you're wondering, "Which mortgage is best for me?!". The answer: Well, it depends on your situation.

Deciding which type of mortgage will best fulfill your needs can be difficult. There are so many types of loans and different term lengths. Your choice is extremely important and can take some time and effort to research. While often neglected by homebuyers, a little research before choosing your mortgage can save you thousands of dollars in the long run. Take a moment and answer these questions:

How long do you plan to stay in this home?
Five years? Ten years? Thirty years? The length of time you will be in the home will certainly play a part in determining which loan to apply for. If you only plan to be in the home for 5–7 years or less, an adjustable rate loan, while more risky over a long period of time, can get you a lower rate for an initial few years. Know how long you plan to be in the home AND how long your rate (mortgage payment) will be low before it "adjusts". If you intend on staying 20–30 years, a fixed rate mortgage will provide the interest rate stability you are looking for.

How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will fulfill this need. The fixed rate loan, however, will also net a slightly higher interest rate especially over the short-term. If you are willing to take some risk of fluctuations in the interest rate, you may be able to receive a lower interest rate.

What are your income expectations?
Plan for the future. Do you anticipate a gradual or dramatic increase in your income in the next few years? If you expect a big increase, a graduated payment mortgage may be best for you. Be realistic with yourself, if you don't know with certainty an increase in income is in your future, don't plant on it.

How much cash do you have available for upfront costs?
If you have the resources, you may want to make a larger down payment to lower your monthly payment. By keeping a higher monthly payment however, you might be able to shorten the term of the loan to a 15-year loan in order to pay it off quicker.

Keep in mind that you’ll have closing costs and fees to pay in addition to your down payment. Some lenders allow you to wrap these fees up into the loan itself. I've seen some lenders wrap these fees into the loan and tell buyers "no fees involved". This is a fine service but deceptive terminology, understand that there are always fees involved with obtaining a loan.

In addition to choosing a type of loan, you must also consider which lender to use. Use the following criteria to help compare potential loan services.

Annual Percentage Rate (APR)
This is most likely the best way to make an "apples-to-apples" comparison of lenders. The APR reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.

Interest Rate
Find out the rate the lender will commit and how long the lender will guarantee it. Get any commitments in writing. As with any transaction, if it isn’t in writing it doesn’t exist.

Points and fees
These factors will vary greatly. Look out for hidden fees. Make sure the lenders disclose all fees; ask what they charge and what is included and what is not.

Loan Approval
Both approval and funding time should be considered. You don’t want to lose a prospective home because your lender takes weeks to fund your loan. A lender should be able to fund the loan within ten days.

Lender Reputation
Don’t rely on solely someone else’s recommendation. You, not your friend, must feel comfortable with your lender. If you do feel good about your lender and trust him , it will be much easier to trust his advice on what kind of mortgage will best suit your needs.

Labels: buyers, loans, mortgages

You're buying a home, you're lender pre-approved, you've made an offer that was accepted and all you're waiting on is to close. The house is yours, right? Not always. Regardless of how good the process has gone, even with the end in sight, there are a few key things you should avoid that can slow and even jeopardize your purchase.

Don't Make a Major Purchase
You've just found out your credit is A+. That's great news, because a new car would look fantastic in the driveway of your new home. But hang on--if you are depending on a mortgage to move in, you'd best wait until after closing to buy that car. An increase in your debt to income ratio reduces the amount of monthly income available for your mortgage payment.
If you tack on a higher car payment, the bank might decide you can't afford the home. Using cash to purchase the car could also create a problem, since banks consider cash reserves when approving your mortgage. If you must make a major purchase before closing, talk to your loan officer before you do it.

Don't Change Jobs Unless It's Necessary
Lenders like to see a consistent job history. They aren't usually as nervous if you change jobs within the same field, but it's better to stay put until the house is yours.

Don't Give an Earnest Money Deposit Directly to a For Sale By Owner Seller
Your good faith deposit should go into a trust account. Some for sale by owner sellers don't understand that funds are not to be spent until closing. I've heard many stories about sellers who spent the deposit money prior to closing. When the transactions didn't take place for valid reasons--such as financing or repair issues, the buyers had to fight for a refund. Find an attorney or other neutral party who will hold the deposit for you until closing day and make sure your contract dictates what happens to the funds if the transaction doesn't close.

Don't Let Your Emotions Take Over
Keep a cool head during the entire home buying process, especially during and after a home inspection. Be realistic. No home is perfect, especially older homes. It's not unusual for new owners to take care of some repairs themselves. Don't let the seller's refusal to do a small repair kill the deal on a home you truly love. On the other hand, don't fall so much in love with the house that you'll buy it no matter what needs to be done--unless you're sure you can handle it emotionally and financially. Decide what type of repairs you can realistically tackle, then stick with the decision.

Don't Forget to Switch Utilities
That sounds simple, but you'd be surprised how many people forget to apply for utility service at their new home. Call the utility companies as soon as you have a contract. Find out how many days lead time they need to switch the service, then get back with them when you have a firm closing date. Don't forget to discontinue services at your old home.

Don't Forget to Line Up Your Hazard Insurance
A no-brainer, right? But it's another often-forgotten task that buyers scramble to take care of at the last minute. Before closing, your lender will want to see an insurance binder showing you have coverage for the new home. Get it as early as possible so that closing isn't delayed. In some locations, additional types of insurance coverage might be necessary. Talk to your lender about insurance requirements well before the closing date.

Don't Become Best Friends with the Seller
I'll get some flack on this one. It's great to be friendly, but don't get into too many long discussions with the sellers, because personality conflicts often cloud judgments. Remember, this is their home. You're no doubt excited about moving in, and if you didn't like the house you wouldn't have offered to buy it. But you'll make changes--everyone does. A casual statement about "ripping up that ugly carpet" might be hurtful enough to keep the seller from negotiating with you about repairs or other issues that crop up.

Don't Panic if the Appraisal Comes in Low
At least not at first. There are some things you (and your agent) can do to correct the problem. Study your options.

Don't Go It Alone
If you're working with an agent, it's the agent's duty to track many of the day to day details that involve the lender, the seller, or the seller's agent. Be sure your agent schedules a final walkthrough just before closing.

Don't Ignore Lender Requirements
Know what is expected of you and take care of it. For instance, a Certificate of Eligibility is required to move forward on a VA loan. That's something you must handle yourself. Answer lender questions and provide required paperwork as quickly as possible--moving into your new home depends on it.

Labels: buyers