How To Shop for a Loan

You're ready to become a homeowner, but you'll need to finance your dream. This could be the most important transaction of your life. Where do you start, what questions should you ask?

Start by finding the financing. This may seem like putting the cart before the horse, but there are definite advantages for having your financing in place. By being preapproved, you:

  • Save yourself time by looking only at houses you can afford.
  • You'll avoid last-minute anxiety wondering if you'll be able to qualify for the home you want.
  • The closing time will be shorter.

You could contact any one of many sources. Commercial banks, savings and loan institutions, credit unions and mortgage companies all offer home loans. A mortgage broker allows you many choices and loan programs to consider, even government programs. With any of these sources, there are questions that will need to be answered. The first question and answer is for you.

  1. How large a down payment will you be making? 100% financing is still available, but the amount you need to borrow will determine if you will need to pay Personal Mortgage Insurance (PMI), which is included in your payment. (The larger the amount of the loan, the more likely you will need PMI.) This can considerably increase the size of your monthly payment. The size of your down payment also determines the size of the loan. The smaller the loan amount, the more choices you may have and you also just might be able to lower the interest rate.
  2. How long will the lock-in period be? The lock-in period is the time the interest rate or number of points you will pay will remain in effect.
  3. Ask about all the costs involved and what they cover. Consider the long-term cost of the loan, not just the monthly payment. Find out what costs and fees you will be paying and what each will cover. You should be given a good faith estimate outlining these costs. Knowing the monthly payment and interest rate is not enough.
  4. Also ask about the same loan amount using a different term of payment. You might save tens, possibly even hundreds of thousands of dollars in interest paid! How? A mortgage with a long repayment term (30 or even 40 years) can give you smaller monthly payments, putting a more expensive home within reach. However, a smaller amount will be applied to the principal of your loan each month. That can increase the total interest costs over the life of the loan.

    Can't handle the higher payments of a 15- or 25-year loan term? By making just one extra payment a year, you can take years off the term of your loan and save tens of thousands of dollars in interest. Simply divide your monthly payment by 12 and add that amount to each monthly payment. This can take years off the term of your loan and save you thousands of dollars in interest paid.

  5. Are there any prepayment penalties? Look ahead. There are any number of reasons you may want to refinance your home in the future. Your loan agreement may limit your options in this area if a prepayment clause is included in the contract.
  6. How long will it take to close the loan? This, along with a preapproval letter, could be a negotiating point you can use with the seller.

 

Lynnette Phillips is a California Realtor, Loan Officer. She is experienced in Foreclosure Consulting, Short Sales and Distress Sales. Her informational blog site is called Helping You Find A Way.

Your questions, queries or comments are welcomed at laphillips@helpingufindaway.info Visit her website http://lynnettephillips.com
 

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