April 17, 2009

Shopping for a Mortgage?

Are you shopping for a mortgage? It is very important to learn about all the details of what will influence the terms and conditions of a home loan. Your credit score is one of the most important things that determine if you qualify for a loan and what the interest rate will be . Your income, the down payment amount, the repayment period, discount points, lock in period among others things lenders will look at to determine your interest rate.
Every reputable lender will give you a good faith estimate, this will break down all the costs involved, it is the way you can compare what it will actually cost you from each lender you talk to.

Do your Homework

Know what the lowest rates are that you could get from each lender, and what offers are available in the marketplace.

Here are some things to consider

  • Interest rates - There are two basic types of interest rates - 1. Fixed rate mortgage - you pay a fixed interest rate for the entire term of the loan, most commonly 15, or 30 years. 2 Adjustable rate mortgage (ARM) allow for initial lower payments and adjusts itself over the years of repayment, based on a variety of financial instruments, usually the rate will increase after the initial period of 3, 5 or 7 years. This is a pre-agreed condition on a set period of time. These are the types of loans that got lots of people in trouble when they readjusted and raised their monthly payments so they were out of reach.
  • The Term or Repayment period - The longer the repayment period, the lower your monthly payments, but  at the end of the repayment period you will have paid a lot more since you are paying interest over a longer period of time. The shorter the repayment period, the higher your monthly bill, but the total amount of interest paid will be less.
  • Down payment - Usually, a larger down payment is required when your credit record is poor. A larger down payment could lower the interest rate of your loan if you have a good credit record.
  • Closing costs - Usually there is an approximate 3-5 percent charge as closing fee which depends upon the type of loan you are choosing, this can often include the amount the lender is charging you for making the loan. Often these costs as well as origination fees can either be re-negotiated or included in the home loan mortgage.
  • Lock-in period - This is like insurance against the sudden rise in interest rates.
  • Mortgage Insurance - If you down payment is less than 20% you will have to pay to insure your mortgage in case you default
  • Taxes and Homeowners Insurance - These are items that will usually be added to your monthly payment. Taxes are set aside each month for your local government, and your lender wants to be sure your home is insured.

There are many factors that determine the terms of you mortgage and how much your monthly payments will be. There more educated you are about all these factors the better you will understand what you are getting into and how to compare the options that will be presented to you.

If you have any questions or need a recommendation to a some good lenders feel free to email me or give me a call at 360-739-6981.

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