Helpful Tips for Shopping for a Home Mortgage

Buying a home is an exciting time for a family. In the mid of all the excuse, however, home buyers should take some time to do some wise shopping for a home mortgage. Research, gather information, and compare rates to make the best decision when obtaining financing for a home purchase.

Research mortgage basics

Financial language and jargon, particularly mortgage terms, can be confusing to someone who is unfamiliar with their meaning. The home buyer should do some research and understand basic mortgage terms before approaching a lender for a mortgage loan. Here are some of the more basic mortgage terms.

  • Principal: Principal is the amount of money the lender allows the home buyer to borrow when purchasing a home. This amount is not including insurance, associated fees, or closing costs.
  • Insurance: Private mortgage insurance, or PMI, is a type of insurance that allows buyers to purchase a home with a lower deposit, or down payment. This insurance protects the lender in the event the borrower defaults on the loan. By adding PMI insurance to a loan, the lender is protected and can afford to offer the loan to the buyer with a low down payment, sometimes as little as 3.5 percent.
  • Annual percentage rate: The annual percentage rate is annual cost of borrowing expressed as a percentage. This is different from the note rate of the mortgage loan. The APR is generally higher than the note rate of the loan.
  • Amortization: Loan payments are applied to the accruing interest on a mortgage loan, with the reminder of the payment being applied to the principal balance. Amortization is the process of how the principal amount of the loan is deprecated over time through making monthly mortgage notes.
  • Closing costs: There are two types of closing costs for a mortgage loan. There are non-recurring items, which are a one-time fee; And there are recurring items, including property taxes and the cost of homeowners insurance. The lender is required to provide the buyer a list of all closing costs on the good faith estimate before the time of closing.
  • Adjustable-rate mortgage: An adjustable-rate mortgage is a mortgage where the interest rate adjusts, as opposed to being a fixed-rate loan. With adjustable-rate mortgages, the first few years of the loan may be at a set rate. After this initial period, the loan rate can change every year.
  • Fixed-rate mortgage: The fixed-rate mortgage offers a fixed-rate for the entire life of the loan. This may be attractive to home buyers who are afraid of rising interest rates on mortgages, and want to lock in a rate they know they can afford.

Gather information from multiple lenders

Every lender wants the buyer to believe he has the best mortgage loan program. The reality is that many lenders will have comparable interest rates. However, the types of loans and the terms of these loans may vary. To find the best deal available, buyers should gather information regarding rates and mortgage loan programs available to determine which lender has the loan to better match their needs.

Obtain a pre-approval for a mortgage

One way to simplify the home buying process is to apply for and receive a pre-approval for a mortgage. To be pre-approved for a home mortgage loan, the borrower will need to provide the lender with his income and expense information, recent tax returns, pay stubs, and other relevant financial information. The lender will also check the borrower's credit history to determine if the applicable qualifies for a pre-approved mortgage. With the pre-approval letter in hand, realtors will be more willing to work with buyers and help arrange the loan closing.

While following these steps is not a 100 percent guarantee a buyer will get a low-cost mortgage, it is the best method for obtaining a home mortgage that is right for the buyer's individual financial situation. For those who are still unsure about which mortgage is most suited for them, a professional mortgage counselor may be able to give further guidance.

Source by Anthony Leger

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