Purchasing a home is something that can provide a number of benefits, both financially and emotionally. However, it is a big responsibility and since most people do not have the funds to buy the home outright, it means taking out a mortgage. Selecting the right mortgage lender is as important, if not more so, than choosing the right home, as for most home buyers, the mortgage represents their biggest investment to date.
When considering mortgage lenders, one of the most important factors is the interest rate that they offer, as well as the specific terms of the loan. The interest rate determines how much the monthly payment is and represents the profit that the lender will make. Interest rates can change on a hour by hour and even minute by minute basis, so one of the most important things to remember is that you can not rely upon printed mortgage rates, advertisements, or even quoted mortgage rates to be an accurate representation of the current mortgage rate.
However, while interest rates can change at a moments notice, it is possible to get a basic idea of the current mortgage rates by doing some calling around and visiting your bank. The reason it is a good idea to start with your bank, is because banks provide a nice metric for getting an idea of the standard mortgage rates in the area. Your bank will also often be able to provide you with a much quicker answer when it comes to applying for a loan and are more likely to not require any application fee until you actually close on the home.
Once you check the interest rate at your own bank, it is a good idea to spend some time exploring your other options. Mortgage brokers can sometimes provide a more competitive interest rate, as they have relationships with multiple lenders. However, a mortgage broker is not really a lender, but more of a middle man and they only get paid if you go through them to finance your mortgage, so it is important to keep in mind that they are looking to make a commission off of you. Many take points, which represent a percent of the total sale price, as their commission, which is in some regards a junk fee, meaning that it is negotiable and not necessarily a part of the actual mortgage.
Many real estate agents have relationships with mortgage brokers, so they may be able to steer you towards a reliable mortgage broker. However, keep in mind that this could also represent a conflict of interest.
There are also a number of mortgage banks, which are special banks that deal in mortgages, as opposed to the traditional checking and savings accounts found at your local bank.
Since interest rates can change so quickly, many people opt to lock in a mortgage rate with their lender. This simply means that an agreement is signed between the mortgage lender and the borrower stating that the lender will guarantee, or lock in, the interest rate for a specific period of time. This often means paying a fee or a deposit, but ensures that the interest rate will be honored, even if the interest rate goes up.
However, the flip side to this is that if the interest rate goes down, you may not be able to get them to lower it and they would certainly be under no legal obligation to do so. As a result, it is important to be very careful before entering into any type of agreement with a lender.
While the interest rate is one of the most important parts of a mortgage, it is very important to consider several other factors, such as whether there is a penalty for paying off the loan early. Subprime mortgages are mortgages that have less than optimal terms and interest rates, but they often look very appealing if you don’t look too hard.
For example, negative amortization loans are one type of subprime mortgage, which has a considerably lower initial monthly payment. However, the payment isn’t really low and instead a portion of each monthly payment is applied to the principal of the loan. So, with each payment, the amount owed on the home actually increases, which subsequently increases the monthly payment.
Evaluating the terms of the loan and comparing it to mortgage terms that you know are acceptable, such as those provided by most local banks, is an essential step in avoiding subprime loans.
As mentioned above, Junk Fees are extra costs on top of the standard fees that can often be negotiated down. When closing on a home, there are a number of extra fees, such as title searches, title insurance, inspections, lawyer fees, courier fees, and even credit checks. Some of these fees, like the title search or the lawyer cost, are strict and can not be negotiated. However, other fees can and should be disputed, as they are often unnecessary padding the pockets of the mortgage broker or lender.
Often the cost of a credit check and courier fee are added on, despite not really being needed or actually used. For example, most lenders check hundreds and hundreds of credit reports each year. As a result, they get a discount on their credit checks, so if they try to charge you anything more than $25, this is an indication that it is a junk fee. Since closing costs can easily cost over $3,000, it is important to carefully consider all of the costs, as well as question anything that does not feel right.
Buying a home is a very big investment and most people use a mortgage, which is a special type of loan, because they do not have the money available to buy a home upfront. Since purchasing a home is such a large investment, and in some cases the biggest of a persons lifetime, it is important to get the best deal on your mortgage. There are many factors that go into evaluating a mortgage and finding a good lender.
One of the most important considerations is the interest rate of the mortgage. The interest rate can vary, based off of the current market, as well as the credit of the person applying for the mortgage. It is essential to have an idea of what the normal interest rate is, so that you can better compare mortgage offers from various lenders.
It is important to understand that mortgage rates can vary on a daily, hourly, or even minute by minute basis. They are not set directly by the lender, but are instead a reflection of a number of factors, which are based heavily upon the current market and economic situation.
Since interest rates can vary frequently, the advertised interest rate is often not very accurate. It is simply not practical, affordable, or possible for a lender to update their advertised mortgage rate every time it changes, so there is no guarantee that you will get the same mortgage rate you see in the newspaper or even online.
In many cases, this is simply a reflection of how often the mortgage rate changes, but there are some dishonest mortgage lenders who purposely advertise a much lower interest rate than they actually offer. So, it is important to always look at advertised mortgage rates cautiously and when speaking with a lender, make sure to ask them how often their mortgage rates are changed.
When you actually apply for a mortgage, especially if there is an application fee, make sure to ask if the mortgage rate is guaranteed and for how long they will honor this guarantee.
While interest rates play a big role in the overall cost of a mortgage and the monthly payments, there are many other costs associated with a mortgage. The closing costs of a home can easily exceed $3000 and even more, depending on the cost of a home. So, it is very important to ask your mortgage lender about any fees and charges that will be associated with the mortgage.
Remember that there is almost never a situation where you will pay nothing in closing costs, so if this is offered by a mortgage lender, you should be very suspicious and make sure to ask them how they get paid and what other fees are associated with the mortgage. In almost all cases, you will find that the $0 closing costs are offset by a number of fees and other charges.
Points are one way that lenders get paid and represent a percent of the total cost of the home, which is paid up front. So, if a lender requires you to pay 1 point on a $100,000 home, you would have to pay them $1000, which is 1% of the total cost of the property. Often, by paying more points, you can get a better deal on your mortgage and lower interest rates, but it can also add up very fast.
It is important to ask about points and other fees like these and compare these fees among lenders, so you can have a better idea of who is really offering the best deal on a mortgage.
It used to be that when you bought a home, lenders required a 20% down payment. Over time, lenders began to relax this requirement, often because the higher your mortgage amount, the more they get paid over the course of the loan.
However, a lot of lenders require that you purchase Private Mortgage Insurance(PMI) if you are not going to have enough money for a 20% down payment. PMI guarantees that if the home goes into default, a portion of it will be covered by the insurance company.
Make sure to ask the mortgage lender whether Private Mortgage Insurance is required and how long it is needed. Often, it is only required until there is 20% equity in the home, but remember that they will not cancel it automatically and instead you must request that the lender cancel it when you reach this point.
It is important to explore all of your options, so you can get a good deal on your mortgage and so you have a basis for comparison to compare different mortgage offers. One of the best places to start is your current bank, as they will usually offer fairly standard interest rates and can usually give you an answer fairly quickly.
You bank also might not require any money towards an application fee, although all reputable lenders will provide you with a free estimate, without actually checking your credit or financial information. Even though they are not checking your information at this time, it is important to be honest, because when it comes time to actually apply for the loan, they will run your credit and check your references, so any dishonesty will be uncovered.
By starting with your bank, you will have an idea of what a standard interest rate is, as most banks do not offer subprime mortgages. This will give you a basis to compare other mortgage lenders and mortgage brokers, so you can get the best deal on your home loan.