Choosing the right mortgage lender can save you thousands of dollars wasted on unnecessary interest. Take the time to educate yourself about the process and to search out the right lender.
Before you even start to shop around for mortgage lenders, you’ll need to identify your budget needs and constraints in relation to the loan you need.
1. Decide how much you can put down on the loan.
2. Calculate out what maximum monthly mortgage payment your budget allows.
3. Use online calculators to pre-qualify yourself for the loan, so you have an official idea of what size loan you will be looking for.
You’ll also need to get familiar with a few terms:
• Fixed-Rate Mortgage – A loan in which the monthly principal and interest rates remain the same for the duration of the loan. Choosing the length of the loan (in terms of years) determines how much interest you will pay. A thirty-year loan will get you lower monthly payments, but will cost you double the amount of interest. A fifteen-year loan will carry higher monthly payments, but will save you 50% of the total interest.
• Adjustable-Rate Mortgage (ARM) – A loan with a variable interest rate – meaning the interest rate can go up or down according to the market. Most ARMs have rate caps limiting how high the interest can go. A periodic rate cap will restrict how much the interest can increase in the time in between one adjustment period to the following adjustment period. A lifetime cap will prescribe how much the interest rate can increase over the entire duration of the loan. Many ARMs operate at a fixed rate for a portion of the loan, and then adjust or vary for the remainder of the lifetime of the loan.
Now you’ll want to spend some time gathering information about possible options. The easiest way to do this research is over the Internet. Check out websites such as www.eloan.com, www.amerisave.com, www.freddiemac.com (or other sites you find by googling “mortgage options”) and take notes, looking for the following information:
• Interest rates available
• Points charged
• Closing fees
• Terms of loans
• If looking at an ARM, when the first adjustment period hits
Use an online mortgage calculator such as the one available at http://mortagemavin.com/fixed-rate/total-mortgage-cost-calculator.aspx.
Once you believe you’ve found the best mortgage rate you can online, start contacting mortgage brokers, and ask them to match the terms you found online. Remember to ask about points, closing costs and fees. Compare offers from local mortgage brokers.
Make sure you have a copy of your credit score available. (You can purchase your FICO credit score from www.myfico.com.) If they say anything about a higher interest rate being the best they can offer you, ask what credit score is required for the lower rates. Make sure you don’t accept a higher interest rate than you need to pay.
By setting local mortgage brokers to compete with each other, and by doing the initial research yourself, you set yourself up for getting the best deal available.
