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Mortgage Shopping Tips & Guide

People are often misled by myths that state that it is almost impossible to get a mortgage, or that all mortgages are about the same with lender's rates being almost identical. In actuality, most people just don't get the right information before they jump into the mortgage pool. Educate yourself before your next loan. Here are some handy tips for skillful borrowing:

1. Be prepared.
It is important to know how much you can afford to spend before you even begin your search. Research your credit history by requesting a copy of your credit report from an auditing firm. Your lender will base your loan on your FICO Score - a mathematical model created by the Experian credit bureau as a tool for lenders to use in evaluating the risk associated with lending you money. Your FICO Score is compiled from a series of questions based on your credit report and your debt-to-income ratio. It is helpful to have both on hand before you apply for a loan. To figure out your Debt-to-Income Ratio divide your monthly payment obligation on long term debts by your gross monthly income.

2. Know what things affect your loan.
As stated above both your credit history and debt-to-income-ratio affect the terms of your loan through your FICO Score. If you have good credit & your monthly income far surpasses your monthly debt obligations you most likely will get approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have good credit, you may not walk away with the lowest interest rate around.

The other important factor to consider is what you can afford as a down payment if you are buying a new house or how much equity you have in your existing home if you are refinancing.

3. Shop around.
One of the biggest mistake that most consumers make when shopping for a loan is to only contact one lender. Consider this - would you only go to one dealership if you were buying a new car? Mortgages, like car prices, are negotiable. The best way to shop for a mortgage is to request comparable quotes from several brokers in your area. Mortgage brokers can do this for you. By shopping your loan with dozens of lenders & negotiating the rate, they can get you the best possible loan.

4. Know which loan is best for you.
There are advantages and disadvantages to every loan. Make a point to find out what they are before applying. Fixed vs. variable, the length of the repayment term, the amount of the downpayment, etc. Make sure that these terms match your goals. For example if you plan to move a few years after getting your house, a loan where you make small payment and the beginning a a balloon payment is made out in the future might be a good fit. If you sell your house before the balloon payment is due, you can use the proceeds to make the balloon payment.

5. Determine the total loan costs.
To get the best loan, look at the annual percentage rate (APR). Many people make a mistake by thinking that the lower the interest rate the better the loan. This is not always the case. The lender usually charges an initial fee for processing your loan - this is called "points." Don't be confused by a low interest rate if the points are high. It could turn out that your total cost may be more than you anticipated.

When selecting a fixed-rate loan, the best way to determine which terms are better is to add up the dollars you will pay for interest and fees, including points, over the life expectancy of the loan.

Points - good or bad? It really depends on if you are looking at the short term or the long term. The longer you plan to stay in your home, the more points you can afford to pay to "buy down" the interest rate. Points are deductible, and the lower interest will more than pay for the points over time.

6. Know the ups and downs of lock-ins.
A lock-in is a lender's written promise to hold a set rate for a specified time period until the loan is completely processed. The upside is that this locks in a lower rate when rates are changing daily. The downside is that lock-ins often cost extra and if rates go down you are locked into the higher rate.

7. Be comfortable with your mortgage broker.
The most common mistake that people make is that they don't spend enough time choosing their mortgage broker. Mortgage brokers are not all equal in expertise, experience, training and trustworthiness. When speaking with a mortgage broker for the first time ask yourself the following important questions:

• Do I feel comfortable with this person?
• Do they take time to fully answer my questions?
• Do they appear to know what they are doing?
• Do they seem to want my future business?

These are just some of the items to consider when getting a loan. Make sure you give yourself time to research, shop and around and think through the consequences of your loan decision.

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