Take the Guesswork out of Selecting a Mortgage

Whether you are a seasoned homeowner or a first-time buyer, selecting the right mortgage program and lender to fit your situation can be a hair-raising and time-consuming process.  You need to devote significant time and attention to making sure that you choose the option that makes the best sense for you.  Tens of thousands of global lenders are prepared to barrage you with potentially dozens of specific loan programs designed to work for every type of potential borrower.  
With so many lenders and even more loan programs, how can you find the program and lender that are truly the best for you? The following information will facilitate making the choice that is right for you.

Education is the Key to Wise Decisions
When you are considering lenders for your mortgage loan needs, look beyond the big-name lenders.  Consider mortgage brokers, seller financing and even insurance companies that finance home purchases.  Create a matrix of lenders so that you can determine your criteria for comparison and note how each lender stacks up against the others.  This gives you the ability to keep your facts straight and review the details later without confusion.

Have an Idea of How Long You Plan to Live in the Home That You Want to Buy
Choosing the right mortgage program is simpler when you make an educated guess about the length of your residency up-front.  Why? Because those who intend to live in a home for only a few years are better off selecting a mortgage program that allows for lower up-front costs.  Loans such as ARMs (adjustable-rate mortgages) or even zero-point fixed-rate mortgages may prove to be more advantageous for the short-term buyer.  Buyers planning to live in their home for more than ten years might be better off selecting a loan with a lower interest rate or paying higher points at the beginning of the loan in order to reduce their monthly costs in the future.

Know How Much Risk You Are Willing to Assume
Fixed-rate, traditional mortgage loans are more predictable and less risky than other types of loans.  If you plan to buy a home in the near future, stick with a fixed-rate mortgage program to protect yourself from today’s changing interest rates and market instability.  However, this may not be the best choice for every buyer. As mentioned above, the decision depend on how long you will live in your home.  Really, the decision boils down to just how much you are willing and able to risk.

Research Convertible Mortgages if You Are Considering an ARM
Convertible mortgage programs give borrowers an escape mechanism when they choose to borrow an adjustable-rate mortgage. When interest rates rise beyond a certain point, convertible loan programs offer the borrower a chance to convert the loan to a fixed-rate mortgage between the first and fifth year of repayment.  Fees are associated with this conversion, but the long-term savings make the option worthwhile should rising interest rates make your monthly payments become unaffordable.

Two-Step Mortgages Are the Opposite of Convertible Mortgage Loans
When you borrow a two-step loan, you receive a fixed interest rate for the beginning of the loan repayment period, which is usually less than ten years.  At the end of that introductory period, the loan converts automatically into an ARM. The borrowers who benefit most from these programs are those who intend to sell their home within the initial repayment period.

Graduate When You Need a Home That is Larger Than What You Can Currently Afford
Graduated payment mortgages offer an initial repayment period with low payment amounts.  The payment amount increases gradually.  Theoretically, people with promising careers will see their payment amount rise in accordance with an increase in their salary. If you opt for a graduated loan, make sure that your beginning payments cover the monthly interest on the loan.  If they don’t, you could see your mortgage amount increase as you make payments, rather than decrease as it should.

Take Advantage of Free Credit Reports
 Pull a copy of your credit report from each of the major credit reporting agencies in order to avoid surprises in the loan application process.  Knowing your creditworthiness ahead of time gives you the opportunity to file disputes, see signs of credit fraud, and clear up anything you weren’t aware of that might affect your mortgage eligibility.

Be Aware of Your Maximum Repayment Ability
Your realtor may offer to do a pre-qualification screening in order to determine how much home you can afford to purchase, but you are the only one who truly knows how much you can afford to pay each month. Analyze your spending and savings habits before you decide which loan program will offer you the greatest benefits.  Don’t let anyone pressure you into spending more than you can comfortably afford, because ultimately you are the one who has to make the monthly payments.

Prepaying Almost Never Costs You Anything
Therefore, we recommend taking your time with the repayment of your loan, at least when you first borrow the funds.  If you choose to borrow a fixed-rate mortgage or an ARM with a 15-year repayment schedule, you need to guarantee that your income can handle the high monthly payments.  If you borrow a 30-year mortgage loan, you will almost never be penalized for overpaying, and overpayments are applied directly to the principal of your loan.

Talk to a Tax Professional
Learn how to maximize the tax advantages associated with your mortgage. Did you realize that if you write a check directly to the lender for the points associated with your purchase, those points are immediately 100% tax-deductible?  If you choose to have the points amortized over the loan, you will be unable to deduct the entire amount. However, this may not be true if you are also borrowing a second mortgage. Refinancing is a completely different ballgame.  Find out as much as you can about your options and available deductions before selecting a mortgage program for the purchase of your new home.

Hopefully this information has given you insight into the mortgage loan selection process.  Being an educated consumer and getting the right loan up-front are extremely important. Talk to multiple lenders to ensure that your interests are covered before you select a loan. Your realtor can help you with the process. He or she has years of valuable experience and expertise with the world of buying and selling that can prove priceless to homebuyers who do not know what to look for in a loan program.  It’s wise to work with a lender you know and trust.