How to Shop for a Home Mortgage Loan

What You Need To Know About Home Mortgage Loans

The purchase of a home is undoubtedly one of the biggest expenditures that most people ever make. A mortgage is the category of loan designed for the homeowner to make affordable monthly payments on his or her residence. But finding the right mortgage to fit your needs will require you to consider the various types of mortgages available, prevailing interest rates, loan terms, closing costs and more. The following information will help you choose the right mortgage.

Compare Home Mortgage Loan Types And Interest Rates

When shopping for a mortgage, the first step is to compare mortgage loans and their corresponding interest rates. The three basic types of loans are:

• Fixed Rate Mortgage
• Adjustable Rate Mortgage
• Balloon Mortgage

In a fixed rate mortgage, the interest rate is guaranteed to remain the same throughout the life of the loan. The main feature of an adjustable rate mortgage is that the interest rate varies with the average prime lending rate determined by the major financial institutions. Like the fixed rate mortgage, the balloon mortgage maintains a steady interest rate until it matures, typically after ten years. At that point, the entire balance is due in one lump sum, or new terms are renegotiated.

One of the simplest ways to determine which type of mortgage is best for you is to use a loan calculator to compare each type. Many lenders offer loan calculators on their web sites that allow you make this comparison right at home, based on your credit rating. You’ll see by the resulting figures which option is most viable for your financial circumstances.

Update Your Credit Report Before You Apply For a Home Mortgage Loan

A good rule of thumb to follow is to make sure your credit report is up to date and accurate before applying for any major loans. This will prevent problems and delays during the loan processing period.

You can obtain your latest credit reports by contacting the three credit reporting agencies directly or by using a single on-line source that offers that service. The three reporting agencies are:

• Experian – (888) 397-3742
• TransUnion – (800) 680-7289
• Equifax – (800) 525-6285

Review each report carefully and follow the appropriate instructions to correct any errors or inaccuracies.

Know How Much You Can Afford

You should thoroughly review your household budget before even thinking about buying a house. The enormity and complexity of home mortgage loans makes it very easy to get in over your head. For example, a fifteen-year loan will cost much less in interest in the long run than a thirty-year loan, so it sounds like the better deal. But the monthly payments on the fifteen-year loan could easily be far more than you could afford. Also, after you’ve compared mortgage loans to decide on the best one for you, you’ll have to add property tax, homeowners’ insurance payments, and any other fees or charges to determine your realistic total monthly expenditure.

Negotiate For The Best Deal You Can Get

Lenders are in business to make a profit, so they’re not likely to offer you ways to save money. But many of them are flexible about certain aspects of a home mortgage loan. For example, you could offer to “buy down” the interest rate on your loan by paying additional discount points up front. In the long run, you’ll pay less in interest payments.

Closing costs are another area to pay close attention to and use your negotiating skills to improve your position. These include application, appraisal, title search, credit report and inspection fees. Both the buyer and the seller are responsible for paying the closing costs, so you should begin by asking for an itemized list of all costs and determine who is responsible for paying each one. The main point here is to become aware of these costs to minimize the number of surprises during the sale.

Paying Attention Pays Off

Attending to the details mentioned above while shopping for a mortgage may seem tedious and maybe even unnecessary, but the more you know up front the more money you'll save over the long run. Saving yourself $10 to $15 a month doesn't sound like much, but it adds up to about $5,000 over the life of a 30-year home mortgage!