The Do's and Dont's - Home Mortgage

Buying a home will probably be the biggest and most important investment of your life. The costs of owning a home (Annual mortgage, taxes and insurance) can vary from 25% to 40% of your gross annual income. Finding the right home will bring many years of happiness.
What is often overlooked is the importance of finding the right home loan mortgage. Getting the proper residential mortgage means you will be living with your means and can plan your financial future accordingly. To potentially save you thousands of dollars on your mortgage interest and fees, here are some pointers.

Do: Get a mortgage pre-approval before shopping for a home

Getting a pre-approved mortgage means that you have the funds to purchase your house. Your mortgage lender has gone through the detailed process of reviewing your income, assets, credit history and other relevant information to see if you fully qualify for the residential mortgage loan. The advantages are many when you get pre approved for a mortgage loan.

1. Sticking To Your Budget: When you go shopping for a house, you will have a set budget based on the house loan amount you have been approved on your mortgage. This will help you stay within what you can comfortably afford and not financially overextend yourself.

2. More Negotiating Power: If the property seller knows you have been mortgage pre-approved, he or she will be more willing to negotiate with you. They won’t have to worry about the transaction not going through because you did not qualify for the mortgage home loan. Because you are dealing from a position of strength, you can probably lower their asking prices by a few thousand dollars.

3. Nobody’s Time Is Wasted: You will not be wasting your time shopping for houses that you won’t be able to get a house mortgage loan for. Besides, most good real estate agents will not show you homes until you are pre-approved for a mortgage loan. They don't want to waste your, their, or the seller's time.

Don’t: Abiding by verbal agreements

Always remember in any dispute, written contracts always carry more weight than verbal agreements. For example, if the mortgage banker promised to wave certain mortgage fees but is not put in the contract—the written contract will always override the verbal contract.

Do: Ask family and friends for mortgage lender referrals

Before or during the interview process with potential residential mortgage lenders, ask people you trust for referrals. You need to be comfortable with the loan officer and their financial institution that you will be dealing with and know they are working in your best interest. The borrowing cost of the home loan mortgage is not your only criteria.

Don’t: Blindly going to a mortgage lender that is referred to by your realtor.

Realtors earn their commission once the transaction is closed. They will recommend mortgage bankers that will help you get the residential loan but not necessarily at the best mortgage rate or borrowing terms. Always do your research before committing yourself to a house loan lender. You should be shopping for a loan with at least three mortgage companies before you make a decision. Getting better borrowing terms will translate to thousands of dollar savings over the life of your mortgage loan.

Don’t: Automatically go to the mortgage banker with the lowest mortgage interest rate and not ask for a written Good Faith Estimate GFE

The advertised mortgage interest rate by a mortgage company is not the only consideration to go by. You must ask the mortgage lender what fees were included in the calculation of the mortgager interest rate. The Annual Percentage Rate APR is a better reflection of the home borrowing rate since it includes the mortgage loan processing fees. The advertised mortgage rate tends not to include all the fees charged for closing a home mortgage loan. If you do sign with that particular residential mortgage lender, you might be paying last minute imposed closing fees or learn that you will be paying extra points. You might not be getting the best mortgage rate after all.

To effective compare mortgage rates, you should first ask for a written Good Faith Estimate GFE from several mortgage lenders before submitting your application. With a few GFE Faith Estimates to compare, you can learn what fees are incorporated and find out which residential loan lender is more forthcoming about the costs of your transaction. The lowest quoted current mortgage rates are not always the best home mortgage deal but the lenders that are most thorough in disclosing their mortgage loan closing fees. Your mortgage company is required to provide you with a written good-faith estimate (GFE) of closing costs usually within 3 business days after receipt of your completed loan application

Do: If you’re getting a mortgage rates lock, get it in writing.

When your mortgage company informs you they have locked your rate, get a written statement specifying the mortgage interest rate.

Don’t: Minimize your down payment on your property purchase

If you want to minimize your down payment on your home purchase, you might end up paying a higher home borrowing rate and be required to pay private mortgage interest. By making a sizeable down payment, ideally 20% or more of your property value, you will avoid paying pmi private mortgage insurance. Since you made a sizeable mortgage down payment on the property, you’ll be able to get lower home loan borrowing rates. Because you have sizeable equity in your home, you are deemed less likely by your mortgage banker to default on your mortgage loan.

Do: Ask your mortgage lender about making extra mortgage payments

By making extra mortgage payments on your home loan, especially early in the term, you could be saving thousands in mortgage interest over the life of the home loan. The extra payments go to paying down your mortgage loan principal. Most mortgage lenders have extra mortgage payment plans such as the bi weekly mortgage payment plan. For these programs to make financial sense, make sure there are no excessive fees or penalties imposed for making the extra monthly mortgage payment.