Shopping for home loan

Shopping for home loan

Basic Factors to Consider When Shopping for a Home Loan

Shopping for home loanToday, almost everyone understands that the last recession had its roots in domestic mortgage borrowing. Many home loans were effectively toxic and were almost completely dependent upon the increase in real estate values providing lenders with their security if the borrower defaulted.

Economic Realities and Lessons Learned

For this reason, today it’s more important than ever that people who are looking to buy a house think about affordability. Economic realism seemed to fall by the wayside prior to the last recession. Buyers and lenders seemed to believe that inflationary growth would continue forever and homeowners could always sell at a profit if they began to struggle with monthly payments. The problems came about when the growth stopped; that’s when borrowers started defaulting. Then, as real estate growth reversed, lenders lost their security and demand for real estate faded away.

It’s been a hard lesson to learn. Financial institutions have responded by seeking to implement far stricter criteria for approving an installment loan application and, in the case of mortgages, a much higher down payment.

Many consumers have since learned a hard lesson, and now want to avoid accumulating too much debt. Of course, there is certainly nothing wrong with responsible borrowing; after all, very few people are able to buy real estate without financial assistance. And when it comes to borrowing, the largest purchase most people usually make is for real estate.

Considerations When Shopping for a Loan

No one should approach a lender out of desperation. There are a number of factors homebuyers should carefully consider when looking for a loan, not the least of which is a lender’s reputation.

Thankfully, the Internet makes doing the background research necessary to draw up a short list of lenders who appear to be offering the best mortgage deals a fairly easy exercise. Keep in mind, that means more than just the headline interest rate; it also includes administrative fees and all of the other terms and conditions that are attached to the loan.

Ideally, homebuyers should have a large downpayment, as the best deals are typically reserved for those who can provide larger deposits.

Another area where lenders place a great deal of significance is the applicant’s credit score; people with highest scores get the lowest interest rates, thereby providing increased purchasing power for the homebuyer. As a result, it’s very important to maintain an excellent credit history. One of the very best ways to do this is by ensuring that your utility bills, credit card balances and loan repayments are always paid on time.

If you’re looking to borrow, it’s imperative that you do it responsibly — so make sure the loan is affordable under your present financial circumstances. Any investment that is affordable is worth serious consideration, but also it’s important to understand that it’s never wise to reach for unnecessary extravagance simply because today’s interest rates are extremely low. You should also use common sense and give additional scrutiny to speculative purchases that may not increase in value.


HOME BUYING 101 – A BEGINNER’S GUIDE

Shopping for home loanTired of handing money over every month for a rental property? You have a steady income, some money put away, and you’d like to put down roots and be stable. It sounds like conditions are right to consider buying a home of your own.

It’s not as daunting as you may have anticipated, and Federal Home Loan Centers will make the process as smooth as possible. The process of how to get a home loan is straightforward if taken step by step, from loan pre-qualification and approval, shopping for a home with your agent, through escrow, and accepting the keys to your new home.

Unlike traditional lenders, Federal Home Loan Centers does not charge any origination fees and will also help you pay your closing costs.

Real estate is a great investment, and it’s also a great time to consider a purchase. For first-time home buyers, a USDA, FHA or VA home loan offers lower interest rates and better terms than a conventional loan. For example, the VA Loan and USDA mortgage are both zero down home loans . The FHA mortgage requirements only require a 3.5% down payment and part of this can be paid by a grant or even gifted from a family member.

Do you know what you are looking for in a home? List your needs first, such as the number of bedrooms, yard size (to accommodate children, garden, etc., or perhaps a yard isn’t desired and would be a headache you don’t need), one-story or two, garage, area amenities and schools are considerations.

You know what you need and want; now how much money do you qualify for? This is called loan pre-qualification, and is the first step in the loan process. It’s generally a quick conversation with a loan officer, or loan originator, who will ask about income, marital status, credit score, etc., in order to determine if and for how much you qualify. Before you talk with a loan officer, find out your credit score from one of any of the three major credit rating companies: Experian, TransUnion and Equifax.

Once you qualify, documentation will be needed to verify the information provided and aid in the loan approval process. This will include items such as tax returns, work history, other income, child support or divorce decree, and current rental or mortgage information.

When your loan amount is approved, you can begin home shopping with confidence. Real estate agents are professionals who know what properties would be a great fit, given your property preferences, sometimes even before the listings go “on market,” giving you an edge over people without loan pre-approval and an agent at their side.

Enjoy the process of home shopping. Your agent may send you listings from the MLS (Multiple Listing Service – a database of available homes), that you can peruse at your computer, but nothing beats seeing the real thing. Go look at homes. Get a feel for the location and neighborhood. Walk around inside the house. Could this be your new home? If you think so, put in an offer. Your agent will help you create an offer letter. If accepted by the seller, escrow opens and the next phase begins.

Escrow is a neutral third-party company that holds funds and regulates payment transactions for both the buyer and seller. The initial escrow account deposit will be “earnest money,” or a good faith deposit, that you, as a buyer, will pledge, thus creating a contract. This earnest money can be used towards the purchase price, towards the closing costs or if you are getting a zero down home loan, then it can be refunded to you at closing. The amount and terms will be written into your contract.

While escrow is open, it’s time to check on the details of your prospective property. Ordering a home inspection will help uncover problems that you may need taken care of before closing the sale, or may help in negotiating a lower price, or even negate the deal altogether. Meanwhile, the lender on your loan will order a property appraisal to ensure that they are not loaning you more money than the home is worth.

The closing of escrow means the contract has been finalized, property title transfers to your name, and closing costs are paid, generally 3 to 5% of the total loan amount. Your escrow company will help you establish the initial payment your property taxes, insurance payments, etc.

Don’t forget, your agent is there to assist you in all aspects of the home-buying process, from home search to paperwork to closing escrow and keys in hand. Call Federal Home Loan Centers to speak with a loan officer at 877-432-5626 .


Buying a home? 15 ways to shop for the lowest mortgage rates

When purchasing a home, shopping for the lowest mortgage rates is an essential strategy that can save you thousands of dollars over the life of the loan.

For the best results, shop with a plan. Do enough upfront research to have an idea of what you want, then see who can get it for you.

Here are some strategies to shop for, and qualify for, the best mortgage rates:

Shopping for home loan

Get a referral from someone you trust and contact that lender to obtain your credit score and discuss your loan options. Your first lender can help you compare FHA and conventional financing, as well as various loan terms so you can make an informed decision on which loan program and term you want before you contact other lenders.

Shopping for home loan

Conventional lenders charge a higher interest rate for lower credit scores. Raising your score can help you qualify for lower rates.

Most lenders require a minimum credit score of 620 to 640. "Typically, a credit score of 740 or higher puts borrowers in the best tier for a conventional loan program," says Michael Smith, first vice president – business development manager for mortgage lending for California Bank and Trust in San Diego.

How much can a great credit score improve your interest rate?

No. 3: Decide how long you'll keep the loan

Shopping for home loan

This is important because it can change the kind of mortgage you choose. For example, if you are risk-averse you might choose a fixed-rate home loan for maximum safety. But in fact, if the property will only be kept for a few years, you can be perfectly safe with a 5/1 hybrid mortgage -- and pay about 1 percent less in interest. On a $400,000 mortgage, that difference in the interest rate is over $250 a month!

Indeed, shorter loan terms can get you a lower rate. While the spread between mortgage rates for loan terms vary, Tierce says that generally, 20-year fixed mortgage rates are about one-eighth percent lower than interest rates for a 30-year fixed, and 15-year fixed-rate loans are one-quarter to three-eighths percent lower than 30-year fixed-rate loans.

"You can save thousands on interest payments with a shorter loan term, although you have to make sure you can handle the higher payments," says Mark Fowler, executive vice president of business development at The Futures Company in Chapel Hill, North Carolina.

No. 4: Contact a mix of financial institutions

Shopping for home loan

Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution. For example, some lenders who are eager to generate more purchase loans might offer the best mortgage rates for homebuyers rather than refinancing homeowners, says Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C. Sometimes a credit union or bank will introduce a new loan product and offer better mortgage rates in order to entice borrowers, says Craig March, a branch manager with Inlanta Mortgage in Janesville, Wisconsin.

"It's best to diversify and try a mix of places such as a direct lender, a regional bank, a credit union, a community bank and a national bank," says March.

The larger your down payment, the deeper your initial equity stake, thus the less risk you pose to the lender.

No. 6: Purchasing a single-family home

Shopping for home loan

Condominiums are considered a riskier investment because they dropped in value more than other types of homes during the housing crisis, says Tierce, so mortgage rates are usually one-eighth percent higher than for a single-family home. However, if you make a down payment of at least 25 percent, that interest rate add-on will not be charged.

No. 7: Be prepared to answer some questions

Shopping for home loan

Martucci says every borrower must be prepared to answer the following questions before lenders can provide an accurate rate quote:

  • How large is your down payment? Interest rates vary according to your loan-to-value ratio.
  • Are you buying a single family home or a condominium? Martucci says a borrower purchasing a condominium with a loan to value above 75 percent will pay a one-quarter percent higher interest rate.
  • Are you purchasing? Interest rates may be higher on a refinance, especially if you are taking out cash which could raise your rate by one-eighth of one percent.
  • Do you intend to waive escrow and pay your taxes and insurance yourself? If so, your mortgage rate could be one-eighth of one percent higher because that's considered a riskier loan, says Martucci.

Shopping for home loan

You can shop in person, by phone, or online with mortgage lenders. What you don't want to do is just mindlessly go with whatever lender your real estate agent recommends -- even if you like that person -- you still owe it to yourself to compare interest rates and negotiate your best deal.

The various fees associated with a loan are one reason why you shouldn't comparison shop solely based on the best advertised rate. Sometimes an advertised rate can be lower than all the rest because of all the fees associated with it.

"Some lenders blend all their fees into a loan preparation fee, while others separate them out, so be sure to ask for the total amount it will cost to close the loan," says Martucci.

Generally, a mortgage with higher fees should have a lower interest rate, says March.

No. 10: Always provide the same information

Shopping for home loan

Make sure when you request a rate quote that you provide all lenders with the same information:

  • The quality of your credit
  • The location, type, and use of your property
  • Size of your down payment or the amount of home equity you have

Keep in mind that mortgage rates change often, so quotes obtained today can't be reliably compared against quotes given tomorrow.

No. 11: Call lenders on the same day

Mortgage rates fluctuate constantly, so you should call lenders as close to the same time as possible on the same day to compare the best mortgage rates, says Martucci.

"If possible, call within the same timeframe, because a bond rally could mean that mortgage rates have dropped dramatically from the morning to the afternoon," he says.

No. 12: Interview lenders and decide

Contact the mortgage lenders and notice who gets back to you right away. Pay attention to who asks you questions about your situation, and who answers your questions in an understandable and meaningful way. See who you feel most comfortable with when discussing your financial concerns. At this point, you already know their mortgage rates are competitive, so trust your gut and go with the person you feel best about.

No. 13: Don't comparison shop by APR

Shopping for home loan

There are lots of ways to shop for a mortgage, but comparison shopping by APR (Annual Percentage Rate) is among the worst of them.

It's a government-mandated figure meant to show the "true cost" of financing a home over a period of 30 years. However, "true cost" is really equal to your loan size plus the interest paid over 30 years (assuming you're getting a 30-year, fixed-rate mortgage), plus closing costs required for the loan.

No. 14: Know when you want to close

Shopping for home loan

The length of your lock-in period will impact your mortgage rate, so discuss your target close date with each lender and ask what they charge for different loan-lock periods.

"Make sure you tell the lender when you expect the closing to be because you want to lock-in the interest rate for the right length of time," says Mark Richards, a senior mortgage loan officer for Citizens One Home Loans in Washington, D.C. "Many lenders charge one-eighth percent more if you must lock-in the loan for 60 days. If you need a 90-day loan lock your interest rate could be as much as one-third percent higher."

One of the largest fees by far can be the points attached to a particular loan. Each point is equal to one percent of your loan amount.

"You need to make sure you discuss with each lender how the loan will be structured in terms of whether you are paying points or not," says March.

If you intend to stay in your home for the long term, such as 10 years or more, you may want to pay points in order to keep your interest rate as low as possible for the life of your loan. If you plan to sell in a few years, paying a lot of cash up front to pay points may not be worth it, says Richards. A lender can show you the difference in interest and monthly payments in order to decide whether or not it's worth it to pay points.

"Depending on the lender, paying one point will reduce your mortgage rate by one-quarter percent," says Richards. "On a $200,000 loan, you'd pay $4,000 to bring down your rate 0.5 percent. You'd only save around $4,000 in the first 10 to 11 years, but you'd save $40,000 over the life of the loan with that lower rate."

You can also use HSH.com's Closing Cost Calculator to figure out if paying points is worth it.

Shopping for the best mortgage rates and the best overall mortgage for you and your financial situation is not an easy task, but these 15 tips should help steer you in the right direction.

10 metros where a home costs about $1,000/month

The salary you must earn to buy a home in 50 metros

One simple form, up to 5 competing quotes!

My husband and I are looking to buy our first house. We will be needing a loan and want to make sure we get a fair mortgage rate. Thanks for the tip on calling lenders the same day to allow for a fair comparison without the influence of rate fluctuation. We'll be sure to do this. http://azloans123.com/buying-a-home/

Reply»

  • Jasper Whiteside October 18, 2016 10:56 am

    I love your advice to avoid comparison shopping with APR. After shopping for cars, I found that the final price was always lower than the suggested retail price, therefore it wasn't really accurate. I hear a lot of talk in the housing industry about market value, meaning finding nearby houses that are similar and comparing what their prices are.

    These tips are great. Keep them coming

    My husband and I are ready to buy our first home, so I really appreciate these tips on how to find the best mortgage. I like the tip you give of being prepared by knowing questions you will be asked and knowing how to answer them. I also agree that it is good to contact a mix of financial institutions, but I imagine that it would be beneficial to find one mortgage company that we like and trust and to stick with them.

    I want to buy a home, but I don't really understand how I can afford it or how mortgages work. I like that with shorter loan terms you can have lower interest. If I start with that but then can't make the payments can I switch it to a longer length with lower payments? I wouldn't want to get stuck with high payments and no way to make them.

    Reply»

  • Lillian Schaeffer August 03, 2016 12:50 pm

    This is some great information, and I appreciate our point that a larger down payment will result in a lower mortgage. My husband and I have been saving up, and we're starting to discuss the possibility of moving out of our apartment and into our first home. We'll definitely continue to save, and we'll make sure to pay the largest down payment we comfortably can so our mortgage isn't as difficult to pay off. Thanks for the great post!

    Reply»

  • Los Angeles luxury real estate July 05, 2016 11:17 pm

    Interesting article! These points are really very helpful. Thanks for providing the information about the best mortgage rates. Keep sharing such amazing articles.

    Can't agree more with the advice here. Do your due diligence and shop for mortgage. It will save you some money. Go to a bank, broker and loan aggregators. They can offer good rates and downpayment options. Best luck with house hunting!


    shopping for home loan

    Contact us now Apply for a Loan

    Contact us now Apply for a Loan

    Contact us now Apply for a Loan

    Contact us now Apply for a Loan

    We have helped thousands of Wellington home buyers and investors!

    We are happy to hold your hand from start to finish, making the home buying process as smooth and stress free as possible. In addition we get you the best deal and our comprehensive service is free to you.

    Shopping for home loan

    Please feel free to download a booklet. These unique guides will help you every step of the way.

    Working with Greg at the Home Loan Shop was the smartest decision my partner and I made when we started looking for our first house. He made everything so easy, and we wouldn’t have got there without him. I would recommend Greg unconditionally to anyone looking to buy a house.

    Greg is the mortgage guru who founded The Home Loan Shop…

    Martin is one of the pioneering brokers of The Home Loan Shop…

    After ten years of working for major banks, Mark Cook finally…

    Callan Wayne-Bowles graduated from Victoria University with degrees in…

    Sloan merged Majesty Mortgage Brokers with The Home Loan Shop in 2012…

    With an impressive track record in lending and customer service…

    Seeing the opportunity to create an insurance arm of The Home Loan Shop…

    Nikki Tait is The Home Loan Shop’s Account Manager who is passionate about…

    She has a background in Business Banking and graduated from Victoria…

    Joined the team in October 2015 after 14 years working with a major bank …

    Katie worked as an assistant in one of the top law firms in Wellington before…