How To Find The Right Mortgage
Purchasing a home is a huge financial commitment. Not only do you have to find the perfect place to call home, but also the right mortgage product that fits your situation. If you are unsure where to start, you can always ask a real estate professional. We deal with lenders daily and know a variety of reputable ones that we can recommend.
Step 1: Finding a Mortgage Lender
When shopping for a lender you will want a reputable company, the best deal available and stellar customer service. It’s important to note that many times you may have one institution as the lender and another as the loan servicer. Ask questions as this will need to be understood before you close. While this doesn’t change the terms of the loan, it will mean that you may be writing the monthly mortgage check to another company. Unfortunately, when it comes to whom services the loan, borrowers have no real say in the matter. It is worth it to shop around for a mortgage lender with which you feel comfortable and will also look out for your best interests. Ideally you will find a lender that offers competitive loan terms that can also handle your loan efficiently and competently. Things to ask when shopping around for a loan are the interest rate, points, APR and closing costs. You should also make sure that there is no pre-payment penalty should you pay off the loan early. The vast majority of buyers will opt for a 30-year loan with either a fixed or adjustable interest rate. However, with interest rates being as low, many buyers are choosing a fixed interest rate.
Step 2: Getting Qualified
Before the house hunt begins, a borrower should meet with a lender to get pre-qualified and figure out what they can comfortably afford. To get qualified for a loan, a lender will typically ask for the following items:
- Two years of federal tax returns
- Two years of W2’s
- Thirty days of paystubs
- Statements for all asset accounts for the past 60 days (checking, savings, and any other investment accounts)
Once you submit a loan application and submit all of the required documentation, a lender will be able to tell you how much you qualify for and also can issue a pre-qualification letter that can be submitted with an offer. A pre-qualification letter can go a long way in showing that you are qualified to purchase the property.
Step 3: Understanding the Different Types of Loans
You will find a variety of loan types from which to choose. For instance, you may hear the term ‘ARM’. Let’s use the example of a 5/1 ARM. This means that the interest rate is fixed for five years and then adjusts annually after that. The appeal for an Adjustable Rate Mortgage (ARM) is that the initial rate is lower the a fixed rate. But when the loan resets the interest rate could go much higher. Often borrowers will choose an ARM if they don’t plan on having the property for long.
For borrowers that don’t have the ability to put 20 percent down on a property, the Federal Housing Administration (FHA) offers a loan that can be done with as little as 3.5% down. The FHA loans also offer an opportunity for homeownership to buyers that have less than perfect credit. The main problem with this type of loan is that mortgage insurance will be tacked on (mortgage insurance is required for any loan that has less than 20% down). The Veteran’s Administration offers loans with lower to no down payments to service members and their surviving spouses. There are also first-time homebuyer loans that are available as well as rural financing through the USDA.
The other type of loan worth mentioning is the Jumbo loan. The standard loan maximum is $417,000, anything over that is considered Jumbo. Typically a Jumbo loan will require a higher down payment and potentially a higher interest rate than “conforming” loans.
There are many other options available to borrowers today. The best advice is to shop around to find the best product that fits your individual needs.
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