STEPS TO CHOOSING A MORTGAGE LOAN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
    

Before you get an agent and start looking at houses, you should have a few mortgage-related items squared away first. This home buying step is often overlooked by first-time buyers. They charge into the market and start house hunting, before being pre-approved by a lender. This can be a real time waster. Your experience will be much smoother if you take the steps recommended in this section, before you start looking at houses.

1. Learn the difference between fixed-rate and adjustable-rate mortgages. Home loans come in many varieties, but in terms of the interest rate they can all be filed under fixed or adjustable. Some loans are “hybrids,” meaning they start with a fixed interest rate and then start adjusting after a few years. Learn the pros and cons of these mortgage types.

2. If you plan to stay in the home for a relatively long time (more than five years), you’re better off with a fixed-rate mortgage. Unlike the ARM loan, the interest rate on a fixed mortgage stays the same over the entire life of the loan. That’s what “fixed” means. This will protect you from future rate hikes.

3. If you know for certain that you’ll only be in the home for a few years, then the adjustable / ARM loan might be worth considering. You could save money with a lower interest rate on the ARM, and then sell the home before the adjustment or “reset” period. Just remember to do your homework. You need to know exactly how the ARM works in order to use it wisely.

4. Start gathering your financial documents so you can get pre-approved for a loan (more to follow on this). Among other things, the lender will want to see your W-2 statements for the last two years, pay stubs or other income verification, bank statements, and other financial documents related to your income and debt.

5. When you have completed steps 1 - 4 above, you’re ready to contact mortgage lenders. This is where you need to understand the difference between pre-qualification and pre-approval. With pre-qualification, the lender will conduct a quick review of your finances to see if they can work with you. If you clear this hurdle you can move on to the pre-approval, which is a more thorough review of your qualifications.

6. You should get pre-approved for a certain amount of mortgage loan before you start house hunting. It will help you narrow your home search to those you can afford to buy, and it also shows sellers that you are serious about buying (and financially capable of doing so). Additionally, some real estate agents will only work with buyers who have been pre-approved by a lender, to avoid wasting their time.