When purchasing a home, finding the right home is very important. One must consider the location in relation to not only work and shopping, but also the types of schools that are in the area. Often, this means selecting a home that is not exactly where you want, just so you can make sure your children are at the best school. While these decisions are quite important, equally important is the choice of the mortgage lender.
A mortgage is a type of loan that is used to help make it possible for people to purchase a home, even if they do not have the entire balance up front. Mortgages vary by lender and there are several different options, but the most common is the thirty year fixed rate mortgage. This means the mortgage is for a length of thirty years and the interest rate is fixed, so as long as payments are made on time, it will not change over the course of the loan.
Another popular type of mortgage is the Adjustable Rate Mortgage. Like the fixed rate, the most common length is thirty years. An adjustable rate mortgage has, as is implied by its name, an interest rate that changes over time. Usually they are described as 5 Year ARMs or 2 Year Arms, which describes how often the rate is adjusted. So, for example, in a 5 year ARM, every five years, the interest rate will be adjusted in relation to the current market. It is important to plan for it to always go up, but with the way the current financial market is, many with quality ARMS have actually seen decreases in their interest rates over the last few years.
The main advantage of an ARM is that it has a lower initial interest rate, but it is important to understand the terms of the loan. Some things to watch out for are early pay off penalties and rates that can be adjusted by more than 1% at a time. Adjustable Rate Mortgages have gotten a bad rap, in part because many of those offered during the buildup to the financial meltdown were actually subprime adjustable rate mortgages.
Just like finding the right location is important, it is also very important to find the right mortgage lender. Those with good credit are at a big advantage here, as they will be able to pick and choose which lender they want, with banks and lenders being motivated to get their business. However, getting a mortgage with no-credit or even bad credit is also possible, but it is essential to avoid predatory lenders, who offer subprime mortgages to those who don’t have many options.
The best place to start looking for a loan is your local bank. This is because they already have a working relationship with you and can often provide you an answer one way or the other very quickly. Even if they turn you down, it is still a good idea to find out what types of mortgages they offer and their terms, as well as their interest rates. Most brick and mortar banks will have a very standard mortgage options, so they can be used to compare other offers to.
Once you have an idea of what your bank can offer, it is usually a good idea to speak with a mortgage broker. Mortgage brokers are basically middle-men who usually have a working relationship with several different mortgage banks. They will be able to check their resources and offer you a few different options. However, it is very important to carefully consider their options, because they only get paid if you buy a loan through them, so are motivated to make a sale.
Once you have received a few offers, don’t be in a rush to jump into a loan. Instead, carefully evaluate each mortgage, its terms, and requirements. This way, you can avoid falling into bed with a predatory lender, who offers a subprime mortgage, such as having an early payoff penalty.
Often, one of the most difficult parts of buying a home is finding the best lender. There are many to choose from and while in most cases they are honest and trustworthy, there are a number of disreputable lenders as well.
One of the most important parts of selecting a lender is making sure to explore all of your options, rather than simply going with the first lender you speak with. Your bank is a great place to start, because they will usually be able to give you an answer very quickly and in most cases will have a rate that is fairly standard. This provides a great basis for comparison when comparing other mortgage offers.
It is also a good idea to speak with a few mortgage brokers and other lenders. However, often these types of lenders get a commission for steering you towards a specific loan package, so they do not always have your best interests at heart. This is why it is so important to explore all options and compare prospective loan offers.
Usually, your real estate agent will also have a connection or two with mortgage lenders or mortgage brokers, so they might tell you to check them out. It will not hurt anything to hear their offer, as they often do have good rates, but keep in mind your real estate agent gets a commission if you go through this lender, so they are somewhat biased.
Often, making the recommendation is required by the agency they work for, but if they aggressively push it, this is usually a warning sign of a direct conflict of interest. In this situation, such a direct violation of ethics is a good indication that their other advice should be taken with a grain of salt.
Every so often, you will come across a seller that wants you to go through their broker or lender, but, unlike your real estate agent offering you advice, any seller giving you this advice should instantly raise warning flags. It could be a real estate owned property or perhaps a private owner, but whatever the case, the seller obviously has some sort of association with the lender, so this should instantly set your warning bells ringing.
You are under NO obligation to use the lender of the seller and for them to even suggest it, especially if they include it in writing, is a bad sign. In the best case scenario, they get a cut from the sale and simply have poor ethics, but in the worst case, it could be they are in cahoots with the lender to commit some sort of fraud.
In almost all cases, it is important to get several offers and compare them, so that you get the best deals. This way, you know you are getting a good deal and are able to look at an offer and determine if it is at or below market value.
However, make sure that you are not paying any fees for these estimates. The lender should be able to take your information and make an offer, without having to do any checking. This is often called a preapproval letter or a prequalification letter, which basically means that assuming what you told the lender is true, they will be willing to offer you a given rate for your mortgage. This is one of the reasons that being honest is so important, because in the end they will find out if you lie about your credit or revenue.
When it actually comes to time to apply for the loan, most lenders require an application fee, but just to get an estimate, there should be no cost.
One of the most important parts of buying a home is obtaining a mortgage. Since most people do not have the money to buy a home outright, they must instead rely upon a lender to loan them the money to purchase the home. As a result, once the mortgage is obtained, the rest is often downhill, although waiting for your offer on a home to be accepted can be very nerve racking. Since a mortgage represents such a long term commitment and investment, which for many is the biggest investment of their life, it is not a decision that should be taken lightly. Instead, it is important to spend some time shopping around and find the best deal.
Typically, one of the first decisions is whether to go to a mortgage broker or a mortgage banker to get your home loan. A mortgage broker is sort of like a middleman, who acts as a go between for banks and people looking for a mortgage. Mortgage bankers, on the other hand, represent actual banks that offer mortgages. Both mortgage brokers and mortgage bankers have disadvantages and advantages, which vary depending on your situation.
Even just twenty years ago, the mortgage industry was dominated by banks. When it came time to get a mortgage, most people went to the bank where they had their checking account and asked for a loan. This slowly changed as other companies and investors began looking at the high returns offered by the mortgage industry and decided to enter into the business of backing home loans.
One of the main advantages of having your bank finance your mortgage is that they will often take not only your credit rating into account, but also your personal history with the bank. This is especially true of credit unions, which sometimes have a much more personal loan approval process. Mortgages offered by banks are also more likely to be less risky and offer a very competitive rate. They are also typically able to move much more quickly than other lenders to approve or deny a loan. In addition, the fees associated with a mortgage from a bank are often lower, as they will hold the loan for its length, making their money this way.
However, while many banks will take into account your history with them, they also tend to have higher standards, especially in todays market. Gone are the days where mortgage lenders rely primarily on personal feelings, with most instead having a set mathematical formula that the borrower must meet. This means that often, a bank will only offer a mortgage to those with a very high credit score. Since the bank makes a great deal of money from other investments, they can afford to be much more picky.
It is a good idea to spend some time building up your reputation with your bank, such as by taking out a small line of credit and keeping it well maintained.
Mortgage brokers, on the other hand, typically have several mortgage lenders they work with. This could be an actual brick and mortar bank, but is often simply a group of investors that buys and bundles mortgages and then sells them to other investors.
As a result, the person that initially funds the mortgage is not the same person that holds it in a years time. This can cause some problems, as has been seen in the latest housing market crisis, where the initial lender lacks the incentive to ensure the person has good credit, because they know they will only hold the mortgage for a few months. This can be a bad thing, but it also means that those with lower credit, often have a much better chance of getting a loan from a mortgage lender. Of course, as a consequence of the current housing market, most lenders have become much more strict in their lending.
Since a mortgage broker is simply a middleman, they often have access to multiple lenders and can often offer much more competitive rates and has more options. However, a mortgage broker gets paid by commission and gets a fee based off the total loan amount. This fee is many times greater than that of a bank and also, since they are personally motivated by commission, mortgage brokers do not always have your best interests at heart.
As with any financial decision, it is a good idea to explore all of your options. Many people start with their bank, as this banks can usually move very fast and have a personal relationship, which can often mean a greater chance of approval. By starting with your bank, you can also get a feel of current interest rates, so when you contact a mortgage broker, you have a way to measure what type of deal they are offering you.
The process of buying a new home can be very exciting, but it can also present a very daunting task for the prospective home owner, especially if it is their first time buying a home. For many, one of the most difficult parts of purchasing a new home is all of the paperwork that is required and it is true that by the time you finish closing on the home, you will very likely have a sore wrist from signing your name.
However, before a person can purchase a home most will have to apply for and be approved for a mortgage, which is a type of loan that uses the home and land as a form of collateral. This is because most new home buyers do not have enough money to purchase the home upfront and instead must turn to a bank or other lender to borrow the money. When you first speak with a mortgage broker, bank, or other lending institution, you will likely either be preapproved for a mortgage or prequalified for the mortgage. While in some financial institutions these terms are used interchangeably, there is a technical difference that should be noted.
Prequalification for a home mortgage is probably the quickest and easiest way to see if you are eligible for a mortgage. During the prequalification, the lender will ask a series of questions regarding your salary, current level of debt, and your assets. Sometimes, the lender may require the prospective borrower to fill out a form with this information, but some will prequalify people over the phone or Internet.
Once the borrower has supplied their current financial information, the lender will use this data to determine what type of mortgage they could offer. The lender does not actually check to see if this information is correct, nor do they run the borrowers credit. Instead, they provide a letter that states how much they would offer assuming all of the information about the borrower is correct.
With a prequalification, it is possible to supply the lender with false information and receive an estimate that is much larger than it should be. However, before the lender offers the loan, they will verify that all the information you provided is correct. So, falsifying this information is not in the best interest of the lender or the borrower. This is also the reason that most sellers and real estate agents look at prequalification letters with a very high level of suspicion. Often, they will require a much stronger letter from the lender before approving the purchase agreement.
During a Preapproval the lender will not only request information about the borrowers finances, but they will also take measures to verify this information. This means that they will run the individuals credit and may even require copies of work and tax statements. Once they have verified this information, the lender will be able to offer the borrower a mortgage.
However, even though someone is preapproved, this does not guarantee that they will receive the loan, nor does it legally bind the bank to give the individual the mortgage. Typically, the bank will require a completed application before officially approving the mortgage, but a preapproval is much stronger than a prequalification.
Typically, a real estate broker or real estate agent will look at a preapproval letter much more favorably than simply a prequalification letter, because a preapproval letter shows that lender has actually verified that the information the borrower provided is correct. However, since the bank has not officially approved the loan yet, a number of brokers will not take a preapproval letter at face value, instead looking at it with a little suspicion.