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
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
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
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
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
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
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.