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Top10.com Helps You Choose Your Mortgage

Everybody’s dream is different and there’s no one-size fits all mortgage solution for everybody. You may prefer a shorter term loan with bigger payments and lower interest rates, or a longer term loan where you pay more interest over time but the monthly payment is lower. Each mortgage agreement has its own pros and cons, and it’s up to you to weigh it all before you sign on the dotted line and get the keys to your dream house. Buying a house is the biggest purchase most homeowners make, so here are some insights to guide you and offer you some peace of mind.

How to Find the Best Lender

Learning the ropes of what you are looking for can help you narrow down the various mortgage lender options. Examine your own requirements to narrow down the pool, and read up about the lenders’ reputations, mortgage rates and service.

1. Compare the types of lenders

Before you try to tackle the lending world, get some intel. Figure out all the different types of lenders you can access - be they online lenders, your local bank branch, or a credit union. What are the pros and cons of each style lender, what are their mortgage rates like, and what makes you feel the most comfortable. 

2. Read reviews

Look at reviews for the various lenders and compare the average interest rates and APRs for each lender and see if you can get some interim quotes online which you can then take to your chosen lender for negotiation of the rates you’ll be offered.

3. Get to know your budget and credit score

Once you’ve gotten the general numbers from lender reviews, take some time to play around with online mortgage calculators to get an idea of what type of property and terms you can afford and what your personal mortgage rates will look like. Know which lenders will offer you what you’re looking for per your credit history.

4. Consider customer service access

Think about what kind of customer service will make you comfortable and give you the assistance that you need. Will you want a personal agent or 24/7 chat? Are you comfortable entirely online or would you prefer a person to talk to face to face? Top mortgage companies offer a wide range of contact options, hours and locations.

5. Improve your credit

If you’re having a hard time getting approved by the best mortgage lenders, try to find ways to improve your credit score by paying off outstanding debt if possible so that you can try again in the near future. This will not only free up money for a down payment, it will also tell lenders that you are a secure borrower and this can help you get better terms and interest rates for your mortgage.   

How to Apply for a Mortgage

Think of a mortgage like this - it’s your chance to buy and own property that would be unattainable as an up front purchase and to build equity and value in that home. You’ll need to show that you have the financial means necessary to make the payments, but you don’t need to pay the value of a home in cash, allowing you to afford the home of your dreams through financing.

Step 1: Choose a lender

When going through the application process, don’t limit yourself to just one lender. Speak to a number of lenders so that you can see who offers the best interest rates, terms and customer service that suits your needs. In addition, once you have an idea of what to expect from lenders, you’ll have a better idea if potential lenders are giving you a good deal or not.

Step 2: Show your sources of income by supplying these documents:

  • Bank statements, including any investment accounts
  • Private and business related tax returns
  • W2 Tax forms from recent years
  • Your monthly pay stubs

Step 3: Prioritize the terms that work for you

Some people are most interested in keeping their monthly payments low, while others are interested in making sure their payments don’t fluctuate and they’ll know what to expect for the years to come. Still others look toward paying off their mortgage quickly and building equity in the home. Think about what you need and which terms might be to your advantage--interest rates are important, but not the only consideration.

What to Look for When Choosing a Mortgage

Take a deep breath and kick back for a second. Signing a mortgage, especially if it’s the first time you’re buying a home, is one of the biggest financial decisions you can make in your life and it’s not something you should rush into. You can relax though, knowing that you’ve done your homework.  

Bigger payments or more interest?

One of the central questions when considering any mortgage is length of term versus size of payments. If you put down a bigger down payment and agree to bigger payments over a shorter loan term, you will pay less interest over the lifetime of the loan. That said, you will also have a higher monthly payment, so make sure this is something you can keep up with. The central question in this calculation is whether or not you’d prefer to pay less interest over the loan term, or would rather have somewhat more interest over a longer term, in exchange for a monthly payment that’s easier to make. This is a decision only you can make, and one that’s best done after taking a comprehensive look at your finances, long term plans and the mortgage lenders and rates available.

Fixed vs Adjustable rate mortgages

With a fixed rate mortgage, the monthly payments are locked in for the entire loan term, which can help you plan your month-to-month expenses. A variable rate mortgage can adjust in keeping with changes in mortgage rates, potentially saving you money on the interest during the repayment period. Consider which is best for you, and don’t rush it.

Processing fees and penalties

Will you have to pay origination fees on the loan, and if so, how much? If you decide that you’d like to pay the mortgage off early, will there be a penalty fee? The sum cost of the interest, payments, and other fees forms what’s known as the annual percentage rate (APR), which is the total cost of the loan per year. Take a look at all of the fine print, and then you’ll get a clearer idea of the entire cost of the loan.

Types of Mortgage Loans

There is a wide variety of online mortgage loans available on the market. The 2 main types are fixed rate loans and adjustable rate loans. Fixed options keep the same interest rate for the entire duration of the loan, and will not fluctuate from month to month or year to year. Adjustable rate mortgages are just that – they adjust at predetermined intervals over time, but with a lower beginning interest rate than fixed loans. Fixed rate loans afford the borrower security and stability – though they will start higher than adjustable mortgages.

Fixed rate mortgages

These tend to be one of the most popular choices for first-time buyers with lenders for first time buyers offering them to those planning to stay in a house for the long-term or duration of the home loan.

Adjustable rate mortgages

This option is best for buyers who plan to stay only a few years in the property, in that for the first few years the loan has a lower interest than that of fixed rate mortgages. Adjustable rate loans do carry risk though – if the value of the house plummets and your mortgage interest rates increase dramatically you may not be able to refinance for better mortgage rates or sell the home.

Two-step mortgages

These have a fixed interest rate for an initial period of time, which changes at a predetermined date. The second mortgage rate will be adjusted to the market at the time of the shift, which can work to your advantage or detriment. When the rate shifts, the borrower has the ability to decide between a fixed or variable interest rate for the duration of the loan.

Balloon mortgages

Balloon mortgages have much shorter terms and begin with a fixed rate of regular payments and fixed interest rates for a predetermined period of time. After this it “balloons” and the rest of the remaining balance is payable with a one-time payment at the end of the loan term. Though this sort of loan entails lower interest rates in the initial years, it requires the borrower to gamble that they will have the funds to make the large payment at the end of the loan period, which often hinges on their financial situation remaining stable, or the property maintaining its value.

In addition, there are conventional loans – which are not guaranteed by the government – and options such as Federal Housing Administration (FHA), Veterans Affairs (VA), and Department of Housing and Urban Development loans (HUD), which may be an option for borrowers who qualify.

Reverse mortgages

If you’re an older homeowner, you may want to consider a reverse mortgage. Now, this isn’t what it sounds like - the bank isn’t paying you to live at your house. Rather, it’s a form of home equity loan that's geared toward older homeowners. The borrower remains the owner of the property and is not required to make monthly payments until they move out or pass away. Reverse mortgages have proven to be a reliable way for older homeowners to increase their monthly cash flow.

VA and FHA loans

Federal Housing Administration and Veterans Affairs loans are government supported loans that can help first time home buyers secure a mortgage. VA loans are for military personnel and can get you a fixed rate mortgage with zero down payment. These loans also have relaxed qualifying standards, though they come with a VA funding fee that can range from between 0.4% - 3.3%.

With an FHA loan you’ll need to put  down at least 3.5%, and will need to pay mortgage insurance premiums for at least 5 years. That said, these loans also come with lower qualifying standards, including credit scores as low as 580. 

What is Mortgage Refinancing?

Simply put, refinancing a mortgage is a way for you to get new mortgage rates and terms that work better for you. With a refinanced mortgage, the lender pays off your previous home loan completely and you are left with the refinanced mortgage.

In order to refinance, you will need to go through basically the same process as when you received the initial mortgage. You will need to have your home appraised, submit financial documents, and pay closing costs to complete the process.

Why do people refinance their mortgages? The main reason is to reach terms that are better for them. For instance, if your monthly mortgage payment is too high, then refinancing can be a way to get some relief. You can also refinance in order to switch from adjustable to fixed mortgage rates, or refinance in order to use your home equity to pay for other expenses in your life.

Rates

The great news for prospective homeowners is that home loan rates are currently at one of the lowest levels in decades, hovering at below 4% for 30-year and 15-year-fixed rate mortgage loans. With additional options for 10-year mortgages and 20-year loans as well, and mortgage rates at their current low, this may be a great time to lock down a fixed rate option. Ask the best mortgage companies for their rates through online quote calculators or customer service agents.

Regulations

There are a number of laws and regulations in place in the US to protect borrowers which all reputable mortgage companies will follow. On the federal level, these include a series of laws such as the Truth in Lending Act – which establishes disclosure requirements for lenders – and the Fair Housing Act, which bans discrimination based upon age, race, gender, religion, or nationality. Federal and state regulations are meant to uphold fairness in the lending process, and also to safeguard the financial information of home loan borrowers.

Before taking out a loan, it is important for you to know the relevant state and federal regulations that apply to it and that your mortgage lender adheres to them. These laws protect and help the borrower know their money and property are secure.

Important Information

Regardless of the length, 10-, 15- or 30-year mortgages all require repayment. Once you’ve bought your home, that property and its equity value are yours to borrow against, sell for profit, renovate, or pass to your children. A home loan gives borrowers ownership opportunities, so take a look at the best mortgage lenders to find the mortgage rates and terms that work for you and your dream home.

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