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Interview
several lenders before making your final decision as
to who to get your loan from. Get a copy of your credit
report to provide to lenders in the early stages (Reports
within 30-90 days are usually sufficient)
Loan Programs: There are
several factors to consider when choosing a loan. Do
you want the stability of a fixed rate, or are you willing
to accept a little more risk in exchange for the lower
initial rate of an adjustable mortgage? How long do
you plan to stay in your home? How much do you want
your monthly payment to be? The following grid outlines
several loan programs that may be right for you based
on your goals. This is by NO MEANS a comprehensive list
of available loan programs, but should serve as guideline
to help you determine with general direction you'd like
to go with your financing.
|
Goals
|
30-Yr
Fixed |
15-Yr
Fixed |
5/1
ARM |
3/1
ARM |
Pay
Option |
Interest-Only |
5-Yr
Balloon |
7-Yr
Balloon |
| I
look for monthly cash flow savings to invest
or to reduce high cost credit obligations |
|
|
|
|
X |
X |
|
|
| I
want to have more flexibility in managing
my mortgage interest payments to maximize
their tax advantages. |
|
|
|
|
X |
X |
|
|
| I
would like to take advantage of the lower
initial interest rates and payments associated
with monthly adjustable-rate mortgages and
am comfortable with more frequent payment
fluctuations due to changing interest rates |
|
|
|
|
X |
X |
|
|
| I
want a stable monthly payment |
X |
X |
X |
X |
|
|
X |
X |
| I
want to buy as much house as I can |
|
|
X |
X |
X |
X |
|
|
| I
plan to own my house in 5 years |
|
|
X |
X |
X |
X |
X |
X |
| I
believe interest rates are likely to fall |
|
|
X |
X |
X |
X |
|
|
| I
believe interest rates are likely to rise |
X |
X |
|
|
|
|
|
|
| I
need flexible monthly payments |
|
|
|
|
X |
|
|
|
| I
want to avoid negative amortization |
X |
X |
X |
X |
|
X |
X |
X |
| I
want the lowest possible payments |
|
|
|
|
X |
|
|
|
| I
plan to refinance within 5 years |
|
|
X |
X |
X |
X |
X |
X |
| I
want more control over my monthly cash flow |
|
|
|
|
X |
X |
|
|
| I
have unsteady income - I need flexible payment
options |
|
|
|
|
X |
X |
|
|
| I
want to pay off my home as soon as possible
but I want a stable monthly payment to do
so. |
|
X |
|
|
|
|
|
|
| I
would like to purchase a larger house without
increasing my monthly mortgage expense. |
|
|
|
|
X |
X |
|
|
|
|
X
= Programs that match goals in the left-hand column
|
Considerations: Think about
how long you plan to keep the loan. If you plan to sell
the house in a few years you may want to consider an
adjustable or balloon loan. On the other hand, if you
plan to keep the house for a longer time, you may want
to look at fixed loans.
- Credit Report: Typically,
it costs under $50 to check your credit. It's best
to order your own free report during the "shopping"
phase.
- Application / Processing
Fee: This cost, typically a few hundred dollars,
is charged to cover the lender's work to evaluate
your ability to repay the loan. Some lenders will
credit this back to you upon closing.
- APR: The
APR, or annual percentage rate, is the sum total of
all your borrowing costs expressed as a percentage
interest rate charged on the loan balance.
- Indexes: The interest
rates on variable loans readjust periodically based
on changes in an index. Typical indexes include the
Federal Funds Rate, Treasury Bill.
- Points:
When mortgage companies are competing by offering
lower interest rates, they may charge you a one-time
prepaid interest payment calculated as a percentage
of the loan. Called "points", this may range
from 0.25% to 2% of the loan balance, and is usually
paid up front. Points are tax-deductible; consult
with your tax advisor.
- Appraisal Cost:
Lenders hire experienced, often independent
appraisers to evaluate the property's purchase price,
condition and size compared to similar recent neighborhood
sales. This helps ensure the purchase price is not
too high, and gives the lender more confidence in
getting repaid in the event they are forced to sell
the property if the borrower defaults. The appraisal
costs vary depending on the property, type of appraisal,
and region.
- Miscellaneous Fees:
Expect to see various charges incurred in the processing
of your loan which might include notary, courier,
and county recording fees.
Prepayment Penalties: These vary widely, so be sure
you know in advance if your lender will charge a penalty
if you refinance or sell, and the certain period during
which the penalties apply.
Compare different programs:
Shopping for a loan can be difficult. With so many programs
to choose from, each of which has different rates, points
and fees, it's hard to figure out which program is best
for you. Ultimately, you will need to decide how much
you can afford to spend on monthly payments as well
as how much you can afford to put down for down payment
and closing costs.
Choosing the Right Lender: Lenders
seem to be a dime a dozen these days. You can locate
a lender online, from direct mail, even on TV, but you
should proceed with caution because the wrong lender
(and program) can you put you in terrible financial
position down the line. Evaluate potential lenders based
on the following (and do not allow 3,4,5+ lenders to
pull your credit. This will affect your credit score
and could potentially knock you out of programs if your
score is on the border of any programs):
- Timely. Ability
to explain things clearly and return your phone calls
in a reasonable time period
- Competitive. Your
lender should be competitive with interest rates,
costs & fees. Request a Good Faith Estimate to
compare apples to apples
- Variety of Loan Programs.
Your lender should have a wide range of loan programs
that suit your credit profile and desired property
- Understands Your
Goals. It's
important the lender listen to what's important to
you and suggest programs that meet your needs - not
just theirs!
Request
A Free Consultation With Our Mortgage Specialist
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