Shopping for a Mortgage in Today’s Market

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As you shop for a home loan, it is critical that you first understand how home loan rates are determined. If you don’t fully understand the difference between advertised and real mortgage rates, you shouldn’t even bother to look at mortgages.

As banks advertise their interest rates, they undoubtedly will broadcast the lowest rate available; without necessarily telling you what will be required for you to qualify for that rate. So, your first objective is to determine if that ultra low mortgage rate also comes with a heft price tag; in the form of an interest rate buy-down.

Now, if you look all over the Internet what you will see is a huge range of mortgage rates being marketed by various mortgage companies. Keep in mind that the mortgage interest rates come from the same place for every bank or broker across the country. Some companies may be more aggressive with the rate they are given, but it should be very unusual for one bank to be more than a quarter-point lower than another bank, with all things being equal.

It is also important to know what kind of fees a bank is planning to charge. This is a great subject to shop around on, but you must keep in mind a couple of things. First, for the most part closing costs are closing costs. The only fees that are actually charged by the bank are the application, origination, processing and buy-down fees. Also be aware that it is much more difficult now to get a Good Faith Estimate from a bank. Due to changes in regulations, before submitting a good faith estimate a bank must have a full application from you. A Good Faith Estimate is an initial estimate of the costs of securing the loan, and as the process continues there are some areas that can change.

It is imperative that you know your credit scores. All mortgage lending is risk-based, meaning they weight your rates heavily on your credit scores, and knowing what range your score is in will help you shop with confidence.

Now you must decide if you prefer a fixed rate loan, or if an adjustable rate will work for you. In today’s lending environment, most people are opting for fixed rate loans because rates are very low. There are, however, many situations where it still makes sense to use an adjustable rate mortgage with an even lower interest rate. How do you know if that’s the right option for you? The best advise is to make sure the mortgage professional you choose has the training and experience to properly explain the good and bad points of each program. Remember, learning about adjustable rate mortgages doesn’t obligate you to choosing that option, by any means; but it has never hurt anyone to obtain a little extra education.

Prepayment penalties are not very common these days, but make sure you ask just in case.

The single most important thing you can do when shopping for a mortgage is to make sure you choose a mortgage planner that you can trust. Your goal should be to find someone who has experience in the industry, and can help you avoid some of the pitfalls involved in the process. This is a very important decision, don’t forget, we are talking about hundreds of thousands of dollars here. Make sure you’re putting your biggest asset and largest liability into the hands of someone you trust.

Let’s face it, in any industry there are those that don’t have a clue what they’re doing. Make sure you ask the right questions and don’t work with anyone who is afraid to answer your questions thoroughly. It’ll just end up biting you in the end.

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