Five Tips for Homebuyers Looking for the Right Home Mortgage
For those who are actively looking to purchase a home, the search for the right mortgage can be daunting. Many consumers are unsure of how to shop for a mortgage. They find the process intimidating and confusing. In this article, you'll find five tips that every homebuyer can utilize in finding the right home mortgage.
Research
The first thing that every potential homebuyer must do is research various mortgage companies to discover what rates and terms they are offering. In performing your research be sure to take notes on each company. This preliminary investigative process, which can be conducted on the Internet, will lead you to specific mortgage companies. After engaging in this process, you should have at least five lending companies with whom you want to talk.
Ask Questions
Before you contact the mortgage companies and lenders, write out specific questions that you will ask each and every institution. The list of questions includes:" What are your rates? " Which rates involve points? " Which rates are fixed and which are variable? " What is your debt-to-income ratio? " How much of a down payment do you require?Use these five basic questions as a starting point in your investigation and evaluation of each company.
Affordable Payments
Each lender will offer specific debt-to-income ratios. One lender may have various mortgage programs with different ratios available. One thing a homebuyer must ensure is that they are comfortable with the loan payment. Thus, even if a lender can offer you a higher debt-to-income ration which might allow you to pay more per month on your mortgage and buy a more expensive home, that doesn't mean that you should accept that offer. Another way to achieve affordable payments is to take a loan for a longer period of time. You can get a mortgage for 15 years and pay it off quickly but your monthly payments will be larger than if you get a 30-year mortgage. As an example, a $165,000 mortgage at 6.00% for 15 years would involve a monthly payment of $1,392.00, while a $165,000 mortgage at 6.00% for 30 years would cost a homebuyer $989.00 per month. The 30-year mortgage is more affordable, however the shorter mortgage period saves homebuyers about $105,000 in interest costs over the course of the loan. Thus, if you can afford a shorter loan period, it can be well worth your while.
How Much Down?
Some lenders will demand that homebuyers put a specific percentage down on the home. These percentages can vary. It may be 5%, 10% or 20%. The higher the percentage of your down payment, the lower your interest rate will be. Even ½ point on a $165,000 loan will save you close to $20,000 over a 30-year period. Thus, if a homebuyer can get a lower interest rate with a larger down payment, they should take advantage of that opportunity. The more cash you put down, the lower your monthly expenditures will be, making mortgage payments easier.
Be Wary of the Following
During the first five years of a mortgage, most of the money a homebuyer pays is interest on the loan. But even in the first five years some of it is principal and after five years, the homeowner does start to see more of the mortgage payment put towards paying the loan down. Stay away from loans where you are only paying interest. Although you will pay less per month, you'll be making no progress towards paying down the mortgage. Some homebuyers opt for a variable interest mortgage. These can be attractive because the rate is usually lower than you'll get with a fixed-rate loan. But the rates on these mortgages can go up, which increases payments. Before agreeing to a mortgage with a variable rate, make sure there is a period where you can lock in your rate and guidelines regarding how high it can go over a given period of time. Also, homebuyers need to compare application fees, lawyer fees, insurance costs and any other additional fees or costs. These can drive up the cost of doing business for the homebuyer.
Best Deal on Your Mortgage
In order to get the best deal on your mortgage, you must research lenders, consider how much you can afford and weigh the advantages that various options afford you. Finally, homebuyers need to negotiate with mortgage companies and lenders in order to get the best deal. It never hurts to ask a lender for a better interest rate or a reduction of fees. Do your homework and you'll be well on your way to getting a mortgage that's just right for you.