Mortgage Loans - What to know before you buy

APPLY BEFORE YOU BUY

When you are planning on purchasing a home, the first thing you should do is apply for a mortgage loan. Having a preapproved mortgage loan has many advantages. The lender can help you determine the price range of a home you can afford and how much money you will need for a down payment and closing costs.

Shop for a loan, not a lender. You may have a long-term relationship with your bank, but that doesn't mean they will give you the best deal. Most loans are sold on the secondary market, so the financial institution that gives you the loan might not be the one that owns and services it for the next 30 years.

The more knowledgeable you are before you approach lenders, the better deal you're likely to get. Look in your local paper to see what rates are being offered. Interview lenders over the telephone before meeting with them in person. Find out if they are the actual lender or a broker. A mortgage broker acts as a third party between you and the lender and there will be extra fees for his services.

Do a background check on the lender you choose. It's crucial that you check out a company's past.

WHAT INFORMATION SHOULD YOU TAKE TO THE LENDER?

Your lender will need to know how much money you have coming in and how much money you pay out in expenses each month. When you apply for a mortgage loan, take the following information with you:


WHAT QUESTIONS SHOULD YOU ASK?

Different kinds of mortgages and different programs are available to help you buy a home. Here are some questions you should ask:

ADJUSTABLE RATE Vs FIXED RATE MORTGAGES

Fixed-rate loans look like a good bet these days and the spread compared with adjustable rate loans has dropped below 2 percentage points, making the fixed rate loan a better value. Adjustable rate mortgages (ARM) still deserve consideration. They are easier to qualify for, have lower starting interest rates and often have lower loan fees. If you plan to move within five years, an ARM will probably be cheaper than a fixed rate loan. A compromise could be a so-called hybrid ARM which offers fixed payments for three to seven years and then adjusts to current interest rates.

ADJUSTABLE RATE MORTGAGES

If the rate is adjustable, you should ask the following questions:

Often adjustable rate mortgages offer a lower or discounted rate for the first year or two of the loan; making the payments lower for that period. You should make sure you understand how the rate and payments will increase after the discounted rate period.

UNPLEASANT SURPRISES

Too often when you sit down to sign the loan documents you discover that the interest rate, points or some other feature is not what you expected. Borrowers are at their most vulnerable point when sitting down to sign the paperwork. A shady lender may try to exploit this disadvantage. There are some steps you can take to reduce your risks.

After your loan is first approved, get a loan agreement in writing. It should spell out the size, interest rate, fees and other details of the loan. If possible include an expected closing date. Get the rate lock-in in writing too. Otherwise, the interest rate on your loan may be subject to change until the day you sit down to sign.

Get a receipt for all fees that you must pay up front, including the terms under which the money will be refunded in the event that the loan doesn't close.

Be wary of lenders or brokers who won't back up what they say in writing.

REMEMBER, your home is likely to be the most expensive investment that you will ever make. Differences in mortgage terms can result in thousands of dollars of savings to you.


Published by the NATIONAL
ASSOCIATION OF CONSUMER
CREDIT ADMINISTRATORS

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