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?
You
are wondering which kind of mortgage is best. The answer: There is no
one correct answer. 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.
There are several elements of a
loan that should be analyzed. While one of these elements may suggest
one type of loan, another may call for a different type. You must weigh
each ingredient separately and collectively. You will find that your
answers to the questions below will ultimately determine the type of
mortgage that best fits your needs.
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, you should
seriously consider an adjustable rate loan. If you intend on staying
20–30 years, a fixed rate mortgage may be right for you.
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
higher interest rate. 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.
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. If
you don’t have much cash saved for your upfront costs, don’t despair.
You may be need to accept a higher monthly payment or even lower your
monthly obligation by choosing an adjustable rate mortgage.
In
addition to choosing a type of loan, you must also consider which
lender to use. Once again, several factors will influence your
decision.
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.
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