Which Mortgage to Choose
by Unknown Author
Key Questions to Ask Yourself and Lenders When Shopping for a
Mortgage!
Traditional Fixed Rate Mortgage? Graduated-Payment Mortgage? Adjustable
Rate Mortgage? FHA Mortgage? Two-Step Mortgage?
You are wondering which kind of mortgage is best. The answer: There
is no one correct answer. Deciding which type of mortgage will best
fulfill your needs can be difficult. There are so many types of
loans and different term lengths. Your choice is extremely important
and can take some time and effort to research. While often neglected
by homebuyers, a little research before choosing your mortgage can
save you thousands of dollars in the long run.
There are several elements of a loan that should be analyzed. While
one of these elements may suggest one type of loan, another may
call for a different type. You must weigh each ingredient separately
and collectively. You will find that your answers to the questions
below will ultimately determine the type of mortgage that best fits
your needs.
How long do you plan to stay in this home?
Five years? Ten years? Thirty years? The length of time you will
be in the home will certainly play a part in determining which loan
to apply for. If you only plan to be in the home for 5–7 years
or less, you should seriously consider an adjustable rate loan.
If you intend on staying 20–30 years, a fixed rate mortgage
may be right for you.
How much risk are you willing to accept?
If you are the type of buyer that needs to know exactly what you
will be paying each month for the term of the mortgage, a fixed
rate mortgage will fulfill this need. The fixed rate loan, however,
will also net a higher interest rate. If you are willing to take
some risk of fluctuations in the interest rate, you may be able
to receive a lower interest rate.
What are your income expectations?
Plan for the future. Do you anticipate a gradual or dramatic increase
in your income in the next few years? If you expect a big increase,
a graduated payment mortgage may be best for you.
How much cash do you have available for upfront costs?
If you have the resources, you may want to make a larger down payment
to lower your monthly payment. By keeping a higher monthly payment
however, you might be able to shorten the term of the loan to a
15-year loan in order to pay it off quicker.
Keep in mind that you’ll have closing costs and fees to pay
in addition to your down payment. If you don’t have much cash
saved for your upfront costs, don’t despair. You may be need
to accept a higher monthly payment or even lower your monthly obligation
by choosing an adjustable rate mortgage.
In addition to choosing a type of loan, you must also consider
which lender to use. Once again, several factors will influence
your decision.
Annual Percentage Rate (APR)
This is most likely the best way to make an "apples-to-apples"
comparison of lenders. The APR reflects the cost of credit on a
yearly rate and includes any points and fees in addition to the
interest rate.
Interest Rate
Find out the rate the lender will commit and how long the lender
will guarantee it. Get any commitments in writing. As with any transaction,
if it isn’t in writing it doesn’t exist.
Points and fees
These factors will vary greatly. Look out for hidden fees. Make
sure the lenders disclose all fees; ask what they charge and what
is included and what is not.
Loan Approval
Both approval and funding time should be considered. You don’t
want to lose a prospective home because your lender takes weeks
to fund your loan. A lender should be able to fund the loan within
ten days.
Lender Reputation
Don’t rely on solely someone else’s recommendation.
You, not your friend, must feel comfortable with your lender. If
you do feel good about your lender and trust him , it will be much
easier to trust his advice on what kind of mortgage will best suit
your needs.
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