Buying a new home is exciting and an important step in a family’s future. Finding the best mortgage options to fit a home buyer’s financial situation can be a challenge. By following a process that looks at all available options, borrowers can find the best value and the mortgage option that best fits their financial situation in a home mortgage loan.
Financial assessment
The first step in buying a home is for the buyer to make an assessment of his financial situation. Income versus financial obligations must be considered. Can the buyer afford to pay the monthly mortgage note? The type of home a family will be able to afford depends upon the amount of disposable income they have available and how much money they can come up with for a down payment. Furthermore, the credit score plays a part in what type of mortgage options will be available to the buyer. A person with a low credit score may not be able to qualify for a mortgage loan with a traditional lender. For families who are making a first-time home purchase, special first-time buyer programs may be available.
Consider options
Once a family determines they are in a financial position to purchase home, they must decide what type of lenders they are going to approach for a loan. There are several types of lenders who make home mortgage loans.
- Traditional banks: A local, neighborhood bank may be the best option for people with reasonably good credit, a steady income, and job stability to start their search for a mortgage lender. Some of the better known traditional banks that offer mortgage loans include Citigroup, Wells Fargo, and Bank of America. These banks will be able to offer you a loan type based on your needs, including fixed-rate mortgage loans or an adjustable-rate mortgage loan, among other options.
- Mortgage brokers: A mortgage broker can be a good option for those with less than perfect credit who still have a decent job and a steady income. The broker has more resources at his disposal than that of a traditional banking lender.
- Credit unions: For buyers who are members of a credit union, they may be able to find a competitive mortgage rate available. If one is already a member of a credit union, the qualifications for quality for a home mortgage loan may be less stringent than those of traditional lenders.
- Online lenders: As more and more people transact their financial business online, online mortgage lenders are becoming more prevalent. The rates are often very competitive and much of the process, if not all, can be completed through the internet. Home buyers need to search research online lenders carefully to make sure they are reputable. Check with the Better Business Bureau to see how the lender is rated and how they deal with customer complaints.
- Sub-prime lenders: For home buyers with a poor credit history, there are still options for obtaining a home mortgage loan. Sub-prime lenders offer loans to people with low credit scores. With a sub-prime lender, the borrower pays a higher interest rate and may also have to pay bigger down payment to obtain a mortgage loan.
Obtain information from several lenders
To secure the best interest rate and loan terms possible, buyers should obtain quotes from several lenders before making a decision. One type of lender should not be excluded before talking with a loan advisor. Even if the person thinks he may not qualify, there may be special programs available that he will only find out about through consulting with a mortgage loan specialist.
Consult with a mortgage advisor
If after obtaining loan information from several types of lenders, the borrower is still confused about which type of mortgage loan and lender is best for the situation; it may be a good idea to obtain independent mortgage advice or speak with a mortgage advisor. Some mortgage consultation services are free and others will charge a fee. However, the savings received from getting the best deal on a mortgage loan may be well worth the cost.
Understand fees and closing costs
To be able to negotiate the best terms for a mortgage, the borrower needs to understand closing costs and all the associated fees of a mortgage loan. These fees can add up to a significant amount of money, and the buyer should be prepared for this additional expense. Some fees associated with mortgage loans include application fees, loan origination fees, appraisal fees, inspection fees, along with many others. Sometimes, a lender will let the home buyer add the costs of the fees into their home mortgage loan or the seller may agree to pay the closing costs.
Negotiate loan terms
Once the buyer has found a lender who they are comfortable with, the loan negotiation process begins. The borrower should ask the lender for a breakdown of all the fees associated with the loan. The home buyer has the option to ask the lender if any of these fees may be lowered or waived, or if better terms are available than those that were quoted to them. If the buyer is then satisfied, he has the option of locking-in the interest rate quoted by the lender.
