When purchasing a home, finding the right home is very important. One must consider the location in relation to not only work and shopping, but also the types of schools that are in the area. Often, this means selecting a home that is not exactly where you want, just so you can make sure your children are at the best school. While these decisions are quite important, equally important is the choice of the mortgage lender.
A mortgage is a type of loan that is used to help make it possible for people to purchase a home, even if they do not have the entire balance up front. Mortgages vary by lender and there are several different options, but the most common is the thirty year fixed rate mortgage. This means the mortgage is for a length of thirty years and the interest rate is fixed, so as long as payments are made on time, it will not change over the course of the loan.
Another popular type of mortgage is the Adjustable Rate Mortgage. Like the fixed rate, the most common length is thirty years. An adjustable rate mortgage has, as is implied by its name, an interest rate that changes over time. Usually they are described as 5 Year ARMs or 2 Year Arms, which describes how often the rate is adjusted. So, for example, in a 5 year ARM, every five years, the interest rate will be adjusted in relation to the current market. It is important to plan for it to always go up, but with the way the current financial market is, many with quality ARMS have actually seen decreases in their interest rates over the last few years.
The main advantage of an ARM is that it has a lower initial interest rate, but it is important to understand the terms of the loan. Some things to watch out for are early pay off penalties and rates that can be adjusted by more than 1% at a time. Adjustable Rate Mortgages have gotten a bad rap, in part because many of those offered during the buildup to the financial meltdown were actually subprime adjustable rate mortgages.
Just like finding the right location is important, it is also very important to find the right mortgage lender. Those with good credit are at a big advantage here, as they will be able to pick and choose which lender they want, with banks and lenders being motivated to get their business. However, getting a mortgage with no-credit or even bad credit is also possible, but it is essential to avoid predatory lenders, who offer subprime mortgages to those who don’t have many options.
The best place to start looking for a loan is your local bank. This is because they already have a working relationship with you and can often provide you an answer one way or the other very quickly. Even if they turn you down, it is still a good idea to find out what types of mortgages they offer and their terms, as well as their interest rates. Most brick and mortar banks will have a very standard mortgage options, so they can be used to compare other offers to.
Once you have an idea of what your bank can offer, it is usually a good idea to speak with a mortgage broker. Mortgage brokers are basically middle-men who usually have a working relationship with several different mortgage banks. They will be able to check their resources and offer you a few different options. However, it is very important to carefully consider their options, because they only get paid if you buy a loan through them, so are motivated to make a sale.
Once you have received a few offers, don’t be in a rush to jump into a loan. Instead, carefully evaluate each mortgage, its terms, and requirements. This way, you can avoid falling into bed with a predatory lender, who offers a subprime mortgage, such as having an early payoff penalty.