06/14/2010 With interest rates the lowest they've been in years, now is a great time to shop for a new home. If you can't afford to pay cash for the new home, you'll need a mortgage. You can obtain one on your own, or enlist the help of a mortgage broker. Either way, these 10 tips will make shopping for a mortgage easier.
1. Know your options. Different mortgage programs offer different payment options. With a fixed rate mortgage, monthly payments never change. Interest rates fluctuate with an adjustable rate mortgage, and that means mortgage payments will also fluctuate. Rates typically start low, making payments more affordable. But when rates increase, there's a corresponding increase in your mortgage payment. Make sure you can afford the payments in the beginning and later on when mortgage payments increase. If you'll move in a few years, consider a balloon payment that offers low monthly payments followed by a single large balloon payment after a predetermined period of years.
2. Determine your monthly mortgage budget. Once you know how much you can afford to pay towards your mortgage, choose a loan term. The most popular terms offered are 15 or 30 years, but you'll also find 10- and 20-year mortgages. Shorter terms mean you'll own your home sooner and save thousands of dollars in interest. But they also mean higher monthly payments. You'll find other low payment options with interest-only adjustable rate mortgages.
3. Lower your interest rate by buying it down. Paying a point, which is equivalent to 1% of the loan balance, can reduce your interest rate. Only consider paying points if you'll remain in your home 3 to 5 years, otherwise you won't recover the costs. If you have an option to finance the point(s) take it so you can reap the savings right away.
4. Get copies your credit reports from Experian, TransUnion and Equifax. Then review each for inaccuracies. If you find any, correct them immediately. Do this before shopping for a mortgage.
5. Find out your FICO scores. FICO credit scores are calculated by the three credit bureaus. The higher the score, the better your negotiating power. Eight-hundred is the highest.
6. When mortgage shopping, check your bank first. Banks usually offer favorable terms to existing customers.
7. Shop for your mortgage online. It's safe and convenient.
8. Enlist a mortgage broker. Brokers have relationships with multiple lenders. That's how they're able to quickly offer the lowest mortgage rates so you can choose the best deal.
9. Realize that different lenders have different closing costs. And understand what they are since they can add between 3 and 6 percent to the cost of your mortgage.
10. Understand what's on your Good Faith Estimate (GFE). Don't sign anything until you're certain you understand everything that appears on this document. Lenders are required to provide a GFE and explain whatever is unclear.
