Shopping for the Best Mortgage

The way you approach mortgage shopping can literally save you thousands of dollars. Take some time to understand the system and make educated decisions.  Doing so may very well cost you less over a shorter period of time.

If I can explain any steps along the way, please ask. I'm always happy to help, and if I don't have the answer I know plenty of good lenders who do.  In fact that is their speciality, mine is real estate.

The steps to successful financing

Get pre-approved.  Don't skip this step.  It is the first and likely the most important step.  It allows you to shop for your dream home in the price range you will be able to buy.  Getting pre-approved is fast, easy and free.  A written pre-approval includes a completed credit application and a certificate guaranteeing you a mortgage to a specified amount.  With one in your pocket, you won't waste time looking at homes you can't afford.  Lenders normally add language such as subject to appraisal, verification of client funds and other items they deem necessary.  It is important to get these items clarified as soon as possible as they could hold up a closing.  If they give you "subject" to language, then you need to get them to clarify and remove those subject to items as quickly as possible, as it could hold up a closing if they are not removed. Examples of "subject to language:" "subject to appraisal," "subject to verification of client funds" and other similar items they deem necessary. 

Examine your finances.  How much can you afford to spend? While a lender will tell you how much you qualify for, it's up to you to figure out how big a payment fits into your budget.  What monthly dollar amount do you feel comfortable committing to?  Remember to consider related costs such as insurance and taxes, as well as interest, principle and home maintenance.

Consider what type of loan is best for you.   Compare fixed-rate with adjustable rate mortgages. Look down the road. Where will you be in 15 years, 30 years?  What obligations might you have? Take those things into consideration as you choose a loan.

Check your Credit Report.   A lender will run a credit report on you (it only takes a few minutes), but you'll be ahead of the game if you acquire a copy first. You'll know exactly what's on it and be able to correct any inaccuracies. Also regards credit cards and credit reports, it is very wise to lower your overall credit card debt as best as you are able. When you pay off a credit card, you can request the credit company lower the credit ceiling (example 10,000, lower ceiling to 5,000 or less). It is better for your credit score to keep a credit card account open and inactive than it is to cancel it.  It is also important to not exceed 30% debt ceiling on any of your credit cards as this will lower your credit score as much as 20 points per overage.  Paying your bills on time is another important criteria for increasing your credit report score.  Your credit report score has nothing to do with how much money you make.  It has everything to do with how well you handle your finances. 

Shop Around.   When you're ready to get a loan, explore your options.  You can choose either a direct lender or a mortgage broker.

A direct lender has money to lend and makes the final decision on your loan. Brokers are intermediaries who choose from many lenders. A broker may be able to help find you a loan if you have special financing needs, but he or she will also receive a percentage of what you borrow. This may also be true of direct lenders.

While you're shopping for a loan, also look for the best loan costs. These may include:

• Interest rates  
• Broker fees
• Points (each point is one percent of the amount you borrow)
• Prepayment penalties
• Loan term application fees
• Credit report fees
• Appraisal costs

Be aware.   Don't let hidden costs sneak up on you. By law your lender must provide you with a written estimate. 

Apply for a loan.  Gather all the documents you'll need to verify your loan application. Lenders will want to know your job tenure, employment stability, income, assets (property, cars, bank accounts and investments) and your liabilities (auto loans, mortgages, installment loans, credit-card debt, household expenses, child support and others).  Be accurate with the information you give to your lender as mis-information could cause you to lose your loan at closing, and you could incur unnecessary expenses during the home buying process.  This is also NOT a good time to buy any big ticket item as this could also jepordize your closing.

You'll need to provide documents such as paycheck stubs, bank account statements and tax returns.  Check with your lender or broker for more information.

Lock it down.   With interest rates changing daily, locking down your rate can prove a big money saver. A rate lock - in writing - guarantees you a certain rate and terms for a specified period of time. Lock in all the costs you can, including interest rates and points.  And try to set the lock at the time of application, not at approval. This will protect you from rising rates.

Your lock-in period should be long enough to allow for all processing time.  Most lock periods range from 15 to 60 days.  Make sure to check with your lender or broker about the average time it takes them to process a loan.

Ask about Pre-payment.   You can shave years off the length of your mortgage by restructuring the way you pay back your loan. Simply paying more frequently can save thousands in interest. So can making a lump payment toward the principle - or paying a little more each month. These methods are called pre-payment. 

Not all loans allow for pre-payment. If you want the option, discuss it with your lender or broker.

Selling Your Home.   Most conventional loans today are not assumable.  They have what is called a "due on sale clause."   

Clear up any financial problems.  Do you have credit problems or owe money to the IRS?  Buying a new home may still be a possiblity.  Contact a financial advisor or tax resolution service to find solutions.

Provided by Lynda Lynde/Broker Owner, ABR, CRS, GRI

Lynda Lynde Realty, LLC, 296 Willowbrook DR, Helena, MT 59602