Business & Finance Renting & Real Estate

How to Find the Right Mortgage

Most likely, your home is the single biggest purchase in your lifetime and your largest investment.
You should therefore think long and hard about your purchase.
If you are looking to purchase a home, you actually have to go through a 2 step process.
1) Looking for the right home.
You'll need to find a neighborhood which suits your personality and needs.
You will have to be able to afford the home you're moving into.
The general rule is that your income should not exceed 28%.
2) Find the right mortgage for your needs.
There are a wide variety of loans including 3, 5, 10, 15 and 30 year fixed and adjustable rate mortgage.
Because people move frequently, you not only need to find a house that suits your needs but will suit the needs of other people who will be your customer and purchase your house when you need to sell.
If you are shopping for a mortgage, you're going to be barraged by a number of different types.
If you trust your real estate agent, they may be a great source to finding a mortgage.
You should know that in most cases, your agent will receive a commission if they refer you to "their guy".
Therefore, the real estate agent may not have your best interest at heart.
Simply finding the best rate can be a poor way to choose a mortgage company.
All lenders acquire funding from the same place.
While nearly all companies have access to the same loan programs and borrow money at the same rate, each will have different fees.
Previously, you simply called a couple of banks and shopped around for the best rate.
That has changed and there are independent mortgage companies who then sell your mortgage to banks, and other institutions.
There are a number of different ways mortgage companies and banks generate fees.
This should weigh into your decision before signing your mortgage documents.
If you have purchased a home, you know the mortgage process is difficult.
You will be asked to submit financial documents and tax returns for the last 3 to 5 years.
Then third parties get involved: the appraiser, the underwriter, home inspector, as well as the title company.
Oddly enough these companies never seem to talk with each other.
Unfortunately, you will be left doing the bulk of the work if you want to get things done in time for settlement date.
A word to the wise; get ready for a whole lot of stress to be added to your life.
Upon agreeing to purchase a mortgage with your new mortgage company, you will receive a Good Faith Estimate.
That estimate should include every expense when purchasing your mortgage.
All expenses should be itemized.
Here a list of expense associated with a typical mortgage: Loan Origination Fee-This fee is typically added in by a loan broker for the privilege of doing business with them.
Never pay this fee Application fee-Why pay for a mortgage broker to take down 5 minutes of your personal information? Never pay an application fee.
Appraisal fee-This fee is paid to the company who appraises your home.
Generally this fee is negotiable.
Credit report fee-Your mortgage company will run your credit report.
There is a $35 fee to your mortgage company.
If you see an exorbitant fee to run your credit report, contest it.
Assumption fee/warehouse fee-Never pay any of these garbage fees Lender fee-This will vary depending on the lender.
This fee is negeotatable.
Wire transfer-Banks do not charge each other to transfer fees.
This fee is 100% profit to the mortgage company.
It you see a wire transfer fee, contest it.
Closing or Escrow fee-The fee pertains to money paid to the escrow company your mortgage company deals with.
Depending on your mortgage company, you may be able to negotiate this fee.
Notary fee-Why pay $200 or more for a notary when you can notarize your signature at your bank for free? Document Preparation fee-Never pay for your mortgage company to handle your paper work.
It's their job and should be included in closing costs.
Recording Fees-Your local government charges a recording fee when you purchase a home.
Inquire with your state government as to the recording charges.
This will insure your mortgage company isn't overcharging you.
Prepayment penalty-This is very important.
Never obtain a mortgage that insists on a pre-payment penalty.
Courier fee-I've seen courier fees as high as $250 or more.
If your mortgage company decides to go with a courier service versus sending paperwork overnight with UPS or the Postal Service, that's their choice.
Just make sure you don't pay for their waste of money.
If they wish to same day courier paperwork, make them pay for it.
Points- One discount point is an upfront payment of 1 percent of the loan amount, paid at closing.
You receive a reduction in the interest rate in exchange for paying points.
In exchange, you end up with a lower monthly mortgage payment.
If you plan to sell the house or refinance within two years, it probably doesn't make sense to pay discount points.
On the other hand, if you plan to keep the mortgage for 10 years or more, you'll save money in the long run by paying points.
If mortgage rates decrease within your 30 year mortgage and you opt to refinance, you'll go through the mortgage process again and start over.
There are a number of costs associated with buying a house.
On top of the typical moving cost, settlement fees, there is an opportunity cost to purchasing your home.
If you are smart, you will put down 20% on your home and avoid PMI (Private Mortgage Insurance).
If you purchase a $200,000 home and put down $40,000, you've locked up that capital into your house.
Can you use that $40,000 to better use in another investment? On a return basis you should consider the power of the leverage on your $40,000 down payment.
If your home appreciates 3% annually, you'll see a paper gain of $6000 after just the first year after ownership.
($200,000 x 3%).
This represents a gain of 15% on your $40,000 investment.
You'll also receive some great tax deductions.
Add in the fact that you'll be building equity in your home since part of your mortgage payment goes to paying off a part of your principal and you have a great case for home ownership.
Buying a home can be one of the most harrowing experiences of your life.
Take your time when searching for your new home.
Don't be forced into a decision you may later on regret.
Search for the appropriate mortgage for your situation.
After all, you'll be writing out a monthly check for a very long time.

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