Q: What are the most common mistakes that consumers make when mortgage shopping?
A: Select the lender offering the best rate over the phone or in the newspaper.. If you contact enough lenders, you are bound to find someone that will “beat” everyone’s price by $100. Typically, this lender does not have the capacity or the intention to deliver what they promised. The number one complaint heard from buyers is that the rate and/or the closing costs changed during the transaction or at closing. The lender willing to “beat” everyone’s price is usually performing a bait and switch.
Assume you can shop Lender A today and Lender B tomorrow. The market is constantly changing and so is pricing. Unless you shop all sources the same day, you are wasting your time. We are a mortgage broker which means we shop over 20 national lenders daily (yes, including the one you saw the television advertisement for last night). Why not let the experts do the shopping for you and take advantage of the wholesale pricing we receive? No, this does not mean you have to pay points or a fee. The lender pays us for delivering your loan at closing. It really is that simple.
Get a rate quote without providing all the necessary information. No reputable lender will simply quote a rate. If you call a lender and ask for their “rate” and you get one without providing any information…run away fast. In our industry, it is impossible to quote accurate rates and fees unless you know the loan size, down payment, type of dwelling, credit history and score, employment status, income, source of assets…need I go on? An experienced loan consultant knows what to ask upfront. This avoids changes during the transaction to your rate and fees.
Accept a mortgage broker’s verbal assurance that your rate is locked or “guaranteed.” Unless you have it in writing…you are not locked or guaranteed anything.
Shop the closing costs on the loan between lenders. This is an important one. Yes, you should be on the look out for excessive points or lender fees. However, the majority of the closing costs are paid to the title company. These will NOT vary based on your choice of lenders.
Don’t check their mortgage professional’s credentials. Let’s face it, buying a home is the most important financial commitment we each make in our lives. You need the help of a licensed professional with the experience, knowledge and technology worthy of your business. Did you know that many banks and credit unions employ loan officers that are not licensed mortgage professionals?
Q : How do I know how much house I can afford?
A : Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.
Q : How do I know which type of mortgage is best for me?
A : There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture, credit score, down payment available and how long you intend to keep your.
Q : How much down payment will I need to purchase a home?
A : There are a variety of financing programs these days that will work for just about anyone! FHA is our most popular product with a 3.5% down payment. There are still two specialty programs that offer 100% financing options -VA (veterans only) and USDA (no mortgage insurance, income and geographic restrictions apply). Of course, we offer all types of conventional financing with as little as 5% down.
Q : What are the costs associated with purchasing a home?
Earnest money deposit – Amount held in escrow when contract offer is made
Down payment – Some buyers will bring cash to closing to reduce their loan amount or amount financed.
Closing costs – Costs associated with creating the loan which are paid to a variety of parties involved in the transaction and listed on your Good Faith Estimate. Interested parties in the transaction, such as the seller, are allowed to contribute to your closing costs.
Pre-paids/Escrows – These include pre-paid interest on the loan created, real estate taxes and home owner’s insurances costs. These items will vary depending on the property. The estimated cost of each is provided on your Good Faith Estimate.
A : For most homeowners, the monthly mortgage payments include three separate parts:
- Principal: Repayment on the amount borrowed
- Interest: Payment to the lender for the amount borrowed
- Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company. Mortgage insurance is also collected monthly on most loans with less than a 20% down payment.
Q : What is PMI? Will I have to pay PMI?
A : Most loan programs require private mortgage insurance or government backed mortgage insurance if you are putting less than 20% down. We will explain the mortgage insurance and demonstrate the costs once you are pre-approved for a particular loan program.
Q : Will I have to pay points? What are they?
A : No, you do not have to pay points. Points are typically an optional closing cost and when utilized appropriately will buy down your interest rate about .25% for every 1% of your loan you pay
Q : What is the difference between a fixed-rate loan and an adjustable-rate loan?
A : With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are several ARM products that have a fixed rate and payment period before they start adjusting. These are commonly referred to as 3/1, 5/1, 7/1 or 10/1 ARMs. The rate and payment on these loans is fixed for either 3, 5, 7 or 10 years. The rates on these products are typically lower than the conforming fixed rate.