to shop for a Home Mortgage
estate tends to represent the single largest investment most of
us ever make, it is vital to secure the best financing available.
Every borrower has different needs, every property is unique,
and every lender has its own rules and programs. The difficulty
for most people in shopping for their own loan is that they don't
know all the right questions to ask. Adding to that difficulty
is the fact that most lenders only have certain programs to offer,
so their job is to sell you what they have, rather than find the
program that fulfills your needs. Choosing the wrong loan can
be costly and even, devastating.
consumer has the choice of shopping for a mortgage product online
or by phone. If you are overwhelmed by the task, then online rate
shopping is not for you. In fact, loan pricing has become so complicated;
even mortgage professionals can error when quoting a rate. A rate
is determined by a combination of factors such as your FICO score,
the loan-to-value ratio, the debt-to-income ratio and the type
of property being financed (i.e. single family home, condo, units
or condotel). In addition, the occupancy will cause the rate to
change. For example, non-owner occupied loans are generally more
expensive that owner occupied loans. The problem most consumers
have is not knowing what information really matters when qualifying
for a mortgage. If one little factor changes, the rate and/or
the program could change. Simply because a consumer gets a mortgage
quote doesn't mean his credit or property profile will qualify
for that program.
recommendation is to invest your energy finding a reputable mortgage
professional that you can trust. Try to get a referral from a
friend or coworker who was satisfied with his mortgage officer.
It would be much quicker and easier to let the professional educate
you and steer you in the right direction rather than being a "do-it-yourselfer".
One advantage of speaking with a professional is they may have
suggestions or ideas that you might not have even considered or
knew existed. They could save you a lot of time and money.
But if you
have the time, energy and temperament to educate yourself about
the many programs available, then online rate shopping could be
successful for you. The first step is determining the type of
mortgage program that would work for your situation. Once you
know what mortgage you want, then gathering quotes is the next
You want to
be sure to compare apples to apples when shopping a mortgage.
It is a very tricky industry so you need to be sure that you are
being quoted the program that you are inquiring about. The rate,
the term, the points, if any, and the fees would need to be compared.
You would also want to know if a prepayment penalty or an impound
account are required. If you are shopping an adjustable loan,
then the frequency of adjustment, the margin, the index and the
life cap come into play. In addition, you would want to know if
the loan had the potential for negative amortization. And if so,
how much negative amortization is allowed. Knowing one or two
of these loan features without knowing the rest of them is pretty
much useless in shopping a loan. It is also the easiest way to
be deceived by an unscrupulous salesperson. The safest way to
compare products is to request a written Good Faith Estimate from
the lender. Seeing a quote in writing eliminates confusion and
estimate will disclose the costs and features of the loan. Since
rates change often, you need to obtain the estimates on the same
day to do a true comparison. In a volatile market, rates can change
several times during the same day which makes shopping a rate
quite difficult. Thankfully, rapid daily changes don't happen
trap consumers fall into is thinking their rate is locked when
it isn't. You need to know if the rate can be locked in at application
and if so, for how long. If a rate can only be locked for 15 days
and it takes the lender 30 days to process your loan, the rate
lock is worthless. The rate may sound good, but you may not be
able to get it. It is not uncommon in the mortgage industry for
deceptive salespeople to deliberately quote unrealistic rates
to entice customers to apply for a mortgage. Later on in the loan
process the salesperson will tell the consumer that their rate
was not locked and the rates have increased. You need to know
when and if your loan is locked, so you don't end up in a bind.
If you skip a step in the shopping process, your mortgage experience
may not have a happy ending.
If you want
a fixed rate mortgage, then shopping a rate should be pretty clear
cut. Our recommendation is to check online with the well-known
banks or a trusted mortgage broker or banker. When you compare
the major players, you will see the rates really vary only slightly
from lender to lender. The rates and the loan costs will probably
be very similar from one company to another. Sometimes banks,
mortgage bankers and brokers offer special programs for low income
borrowers or certain zip codes. These special programs may result
in savings such as ¼-½% in interest rate. You can
pretty much figure if someone is quoting 2% and every other lender
is quoting 6-6.125%, that something is wrong with the 2% quote.
When an interest rate sounds way too good to be true, it probably
thing you should do before shopping for a loan is to obtain a
copy of your credit report from all three reporting bureaus, Experian,
Equifax and Trans Union. You can obtain a free copy of your report
from www.annualcreditreport.com. This will give you a chance to
see what is being reported and will give you time to take care
of anything that is being reported incorrectly. Your credit score
is one of the key factors that will determine the interest rate
and program offered to you. DO NOT let each lender you speak to
run your credit report. Too many inquiries can negatively impact
your credit score.
you determine what mortgage is right for you?
should ask yourself several important questions. Some examples
of these questions are:
- How long
do I plan on staying in the property? Will I move in 6 years
when my children graduate from high school?
- How long
do I plan on having this loan? Am I inheriting some funds and
will pay it off in the next two years? If so, is a 30 year fixed
rate loan really necessary?
- How much
can I afford per month? This is different from what the lender
thinks you can qualify for. This is your personal assessment
based on your life circumstances. If you like to travel a lot,
have ten children or a child with special needs, you may not
be able to make the payments even if the lender says you qualify.
You need to decide what payment is comfortable for you.
- What is
the value of the home I am buying or refinancing? This will
determine your loan-to-value ratio, which is important in determining
your interest rate.
- How much
of a down payment can I afford to make? If I can get a better
rate by making a larger down payment, am I willing to do that?
Does the benefit of a lower rate justify parting with the funds
and the interest I would be earning?
- Can I afford
larger payments in a few years and need lower payments for the
time being? For example, will the family have extra income when
the spouse finishes college and goes back to work full time?
- Do I intend
to make larger payments than what is required and pay the loan
off quickly? Would simply doing a 15 year fixed rate loan at
a lower rate be a better way for me to accomplish paying my
home off quickly?"
Once you have
determined the mortgage program that fits your needs, you can
begin shopping for a loan. Just remember to get the loan quote
in writing so all your hard work pays off. There are many different
companies that can provide home loans. Some are very efficient
with good customer service and some of them are playing the "numbers
game." They don't care if they see you again; they aren't
looking for loyal customers. They are just looking for immediate
income. Obtaining a referral from someone you trust is usually
a far better way to obtain a loan then wading through the minutia
of mortgage products. A mortgage is major purchase