In life, there are plenty of important choices to make that effect our wellbeing. The right friends, the right spouse, the right job and so on. Each choice can and generally does impact the next. Your best friend asked you to go out to a function where you met your future spouse. Your spouse helped you decide which job you would be happiest with. Now, together you are planning to buy a home and even discussing retirement goals. See where this is going? I bet you didn’t think deciding on a mortgage lender could stack up to one of these important decisions. I’d like to share with you why I think it is.
Nowadays with all the options made available, it is indeed challenging to choose which home loan mortgage is ideal for you. If you are confused, you are definitely not alone. It is important to learn as much as you can about all the options for home loans before deciding on which option is best for you. You should also seek out the advice of experts to clear up any confusion you may be having along the way. Choosing the right lender with your very best interests in mind is one of the most important decisions that you will make. The right loan for your individual situation can prove to be life changing in savings over time. Simply put, this decision can be the difference of the type of retirement you have. One best practice recommended is that you get a referral from friends or family who have had a great experience with their current mortgage lender. If that is unavailable to you, then another smart approach will be to ask for references from the broker or banker you are talking to. Reading reviews is always a good practice, but verifying the reviews and references is always best.
When should I consider refinancing my current mortgage?
Homeowners with adjustable rate mortgage loans should pay close attention to the current market mortgage rates. When the adjustable arm increases, then it may be time to shop for a refinance loan solution. It may be a good time to switch to a fixed mortgage that saves you money every month. This can also save you tens of thousands of dollars over the life of the loan.
When shopping for the best home loan refinance program, it is a good idea to call your current lender and see if they have any refinance programs available that may benefit you. Many lenders do not want to lose their customers and may offer to refinance your mortgage at no cost and at a competitive rate. It’s always a good idea to shop your mortgage options with several other sources. This keeps you up to date and keeps the competition honest. One thing to look at is obviously the rates, but also business transparency is crucial. If you’re happy with your current lender relationship, you should continue it. Get a quote at the very least.
What about closing costs and fees??
When getting a quote from a broker or a direct lender, it’s important to understand the entire picture. Whoever is quoting your loan should be able to give you a very clear understanding of what your monthly costs will be. They should take this payment amount and break it down to exactly where this money is going on a monthly basis from the first month to the last month. How much of the payment is going towards the principle of the loan? How much is going towards interest? Is some of it is going towards insurance and so on. Understanding where every penny is going will also help you in determining the fees or points. Is one lender charging you much more in closing costs but offering a lower overall rate? Can a lower rate actually help pay any closing costs? There is much to be considered. Including how long you plan on staying in this home. A good lender will take the time to explain each option and how you will benefit in the long run.
Which mortgage options are right for me?
A good lender will take the time and do a few initial things to evaluate the direction of your loan. The main deciding factors that will determine which type of loan you should try and get will be the following:
- Your current income amount. Weekly, monthly or annual amount is needed. The bank needs to know that you make enough money to pay back the loan on a monthly basis. Sometimes, a joint application with a spouse is needed so that the income level monthly is sufficient to pay back the loan. A lender can help you figure out what you can afford and give you a pre-approval. Many real estate agents require this as well.
- How long have you been at your current job? Many lenders require a 2-year minimum. After this they look at your credit score to determine the general risk of lending you the money.
- Your credit rating plays a tremendous role in deciding which loan is best for your individual needs. For example, a government FHA loan can be approved with a FICA score of just 580. There are also programs that help with initial renovations of your new home such as the FHA 203K.
- Your deposit percentage amount. Various loans require different deposit percentage amounts. This also can affect the rates of your loan as well as the likelihood of approval. In many cases, the source or the deposits will need to be verified. Proof of bank statement from where the money is coming from will be required in most cases.
These are the general factors of what the bank will be looking for when determining if you are credit worthy or a credit risk.
There are some other things like LTV % (Loan to Value). This percentage has to do with how much money you owe currently. If your combined monthly debt is too much, then you may need to pay down this amount before you can get approved.
This should give you a basic idea of what is needed to get a mortgage. The next step is the most important.
Choosing the right Lender
In most cases, your largest monthly expenditure will be your mortgage payment each and every month for most of your life. This means that most of the money you earn every month will be paid towards a mortgage. Just as important as finding a good mortgage lender is having a good realtor. The realtor can help guide you in making the right decision for you and your family in the home you choose to buy. Choosing both of these carefully can impact your future goals equally. For example, a realtor can really care about you finding a great home for you and your family, but then doesn’t really care who you use to get a mortgage as long as the loan gets closed. If the loan gets closed, the sale went through and all the commissions get paid. In this scenario, the realtor can care about your safety and your kids educational needs for instance, but not really care whether you are able to save 100k at the end of your 30-year mortgage. That’s why it’s best to always get a quote from 2 or 3 lenders. Some lenders can recommend great realtors as well. If you find a good lender that truly cares about what’s best for your pocket, most of the time that lender has built relationships with realtors that care just as much. Here’s the biggest difference to consider. Realtors generally have 6 month contracts you’ve signed whereas mortgage lenders have none. So it is smart to shop around until you are comfortable with your lender. If it doesn’t feel right, it’s probably not right. So keep trying. Once you’ve made your choice, we recommend you stay in touch. Markets change as do financial situations. Having a good lender pays huge dividends over time. It surely will affect your overall financial goals. Choose carefully and we wish you success.