Shopping for an FHA Loan, VA or
Conventional Loan?
Learn How to Do It Effectively
Key Questions to Ask Yourself and Lenders When Shopping for a Mortgage!
Traditional Fixed Rate Mortgage? Adjustable Rate Mortgage? 5/1 ARM? 3/1 ARM? Negative or Option ARM?
You are wondering which kind of mortgage is best. The simple answer is: There is no right loan. Deciding which type of mortgage will best serve your individual needs can be difficult. It is critical to spend a little time understanding the advantages and disadvantages of each program. With a little effort you can save thousands by choosing the right mortgage.
There are several characteristics in each type of loan, some of each will be to your benefit and some will not. Taking each characteristic into account and their combined effect will guide you in your decision making. I order to be able to analyze the various products you need to examine your personal circumstances rather than directly comparing the mortgage types.
By answering the following questions, you will be able to make an informed decision:
How long do you plan to stay in this home?
The length of time you will be in the home will certainly play a part in determining which loan to apply for. If you only plan to be in the home for 5 -7 years of less, you should seriously consider an adjustable rate loan. Depending on the level of risk you are willing to take, the first adjustment can be one, three or five years from now.
How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will fulfill this need. The fixed rate loan, however, will also net a higher interest rate. But what if you are not qualified for that payment though you may qualify for the slightly lower 5/1 ARM payment.
What are your income expectations?
Do you anticipate a gradual or dramatic increase in your income in the next few years? This applies to the newly graduate who has only been in the workforce for a few years. If so then an adjustable rate mortgage will be ideal.
How much cash do you have available for upfront costs?
If you have the cash available, you may want to make a larger down payment and reduce your monthly payments. Keep in mind that you’ll have closing costs and fees to pay in addition to your down payment. Furthermore, will feel safer keeping the cash in reserve and put up with slightly higher payments. If you don’t have much cash saved for your upfront costs, don’t despair. You may have to settle for a higher monthly payment.
In addition to the above, you need to make an informed decision about your lender and other details of the offering.
Annual Percentage Rate (ARP)
This most likely is the best way to make an “apples-to-apples” comparison of lenders. The APR reflects the cost of credit on a yearly rate and includes any points and fees in addition to the interest rate.
Interest Rate
Find out the rate the lender will commit and how long the lender will guarantee it. Get any commitments in writing. As with any transaction, if it isn’t in writing it doesn’t exist.
Points and fees
This varies greatly. Watch out for the subtleties of the terms used, like origination and discount which basically mean the same thing. Look out for hidden fees. Make sure the lender discloses all fees; ask what they charge and what is included and what is not. Take it writing and compare.
Lender Reputation
Don’t rely solely on someone else’s recommendation. And above all, don’t rely on a Real Estate Agent’s recommendation, especially if they are trying to get you to use their in-house lender. You, not your friend, or the real estate agent must feel comfortable with your lender.
