Going for a Mortgage? Here's What You Need to Know
By John Voket
In our last update, I talked about a report on which banks are making it easier for consumers to obtain credit and a mortgage. So the next logical step is covering how to best prepare to shop for a mortgage.
According to the experts at Fannie Mae (fanniemae.com), before shopping for a home mortgage make sure you obtain all the relevant information:
Research current interest rates on the Internet, or call at least six lenders for information.
Check the rates for 30-year, 20-year and 15-year mortgages. You may be able to save thousands of dollars in interest charges by getting the shortest-term mortgage you can afford.
Ask for details on the same loan amount, loan term, and type of loan from multiple lenders so that you can compare the information. Be sure to get the Annual Percentage Rate (APR), which takes into account not only the interest rate but also points, broker fees, and other credit charges expressed as a yearly rate.
Ask whether the rate is fixed or adjustable. The interest rate on adjustable rate mortgage loans (ARMs) can vary a great deal over the lifetime of the mortgage.
If a loan has an adjustable rate, ask when and how the rate and loan payment could change. Ask if you can pay off the loan early and if there is a penalty for doing so.
Find out how much down payment is required. Some lenders require 20% of the home's purchase price as a down payment, but many lenders now offer loans that require less. They may, however, stipulate adding private mortgage insurance (PMI) to protect the lender if a borrower misses payments.
If PMI is required, ask what the total cost of the insurance will be. How much will the monthly mortgage payment be when the PMI premium is added and how long you will be required to carry PMI?
For more information on home buying and mortgages, visit Fannie Mae's website www.fanniemae.com, or call 202-752-7000. And look for our next report with some great tips on working with lenders.
Reprinted with permission from RISMedia. ©2014. All rights reserved.