There are many mortgage options available to homebuyers. Most people think of the traditional 30 year loan with a 20% down payment when it comes to mortgages. Unfortunately many people miss out on home loan opportunities that can better suit their needs because of miseducation or lack of awareness. Read about the several different factors for home loans and how to find the right mortgage for your needs.
1- Amortization Schedule
There are many different amortization schedules available to prospective homeowners. You can opt for a fixed rate mortgage or an adjustable rate mortgage. The lengths of each mortgage can vary as well. Mortgage terms usually vary from 5 years all the way up to 40 years in 5 year increments. Discuss the different amortization terms available with your mortgage provider to see what best suits your financial needs.
2- Interest Rate/ APR
When shopping around for mortgages be very aware of the different rates being offered. Also take into consideration the APR of the loan. The APR is made up of different costs associated with the loan. Be sure to understand the closing costs and discount points that come with the loan. This will allow you to be certain that you are getting the best deal.
Most loans do require some kind of down payment. Find out what loan you are qualified for and the percentage of down payment you will be required to make. On loans where there is no down payment required, take into account any type of funding fees that you may have to pay.
4- Mortgage Insurance/ Funding Fee
Mortgage insurance is an insurance policy that protects lenders in the event of a loss on a mortgage. Most lenders require mortgage insurance for any mortgages that are over 80% loan to value due to the increased risk of the home not having much equity. Depending on the loan to value and mortgage product you choose, there may be mortgage insurance or a funding fee that you have to pay. Take into consideration the different rates of each type of mortgage insurance and how much the funding fee may be. Compare this between mortgage products to find the most affordable product for yourself.
5- Closing Costs
Take a close look at the Good Faith Estimate being provided by the different lenders you are applying to. It is an itemized document estimating what your closing costs will be on your mortgage loan. Some items are standard such as the regional cost for an appraisal. Take a close look at the origination fees, credit reporting fees and the cost to lock a rate. These items can vary greatly amongst lenders so be sure you are being charged fairly.
6- Service Provider
Once the loan has closed it can often be sold on the secondary market. Speak with your mortgage provider on who to loan may be sold to. The servicer of your loan is who you will need to contact over the next several years with any questions or concerns regarding your mortgage. Research what the reputation is of this mortgage provider.
7- Escrow Arrangements
A mortgage payment is typically comprised of principal and interest. However, many lenders either have the option or require the borrower to pay into a monthly escrow account. This account sets money aside monthly to pay for property taxes and homeowner’s insurance. Determine whether or not you want to pay into a monthly escrow account and whether or not your lender offers one.
8- Pre-Payment Penalty
Most lenders no longer assess pre-payment penalties but make sure you find out if your lender has one before closing on a loan. A pre-payment penalty is a fee charged to a borrower if they pay the loan in full before the amortization schedule is complete. If you decide to sell your home or pay it off sooner you do not want to pay one of these fees.
There are many facets to mortgage loans. Be sure to compare all of the different options that are associated with your loan. Since this is the largest investment you will make, be persistent on being fully informed and making the best decision.