Interest Rate
Everyone wants to find the best interest rate when they begin shopping for a loan.
However, interest rate offers are sometimes deceptive and can easily be manipulated for
marketing purposes. Considering that an escrow can take 60 days or more, a good
"qualifying" question when investigating interest rates, is "How long will
you guarantee this rate?"
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Points
There are always costs associated
with getting a loan. Charging "points" is one way to collect loan fees, with
each point equaling 1% of the loan amount. Beware of those making a
"too-good-to-be-true" offer to reduce or eliminate points. Because costs must be
included somewhere, other fees may be inflated or tacked-on to compensate for no or
"low" points.
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Fixed Rate vs. Adjustable Rate
Keep an open mind on
this one... don’t decide what kind of loan you want until you have explored all of
your options. No loan is universally "better" than another. Everything from your
financial condition to the current state of the economy should be evaluated by a
professional loan consultant to determine the correct loan for you.
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FHA Financing
Previously thought
to be "poor man’s financing," the FHA loans of today sometimes offer
flexibility and cost savings that are superior to conventional financing. To determine if
you qualify for an FHA loan, be sure to select a lender that is HUD-approved and is
experienced with the FHA process.
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Choosing
Your Length of Loan
In recent years a
10-year loan has replaced the 15-year loan as the option that will save
you the most money in interest, but it will subject you to the highest
payment. The 40-year loan is a newer alternative providing the lowest
payment but usually the highest interest rate. A 20-year loan has become a common
choice to reduce interest cost while still providing a reasonable payment
and the 30-year loan is still the most popular choice. You'll need a sharp
pencil and an experienced loan consultant to assess your financial
situation and goals in order to determine the best length of loan for you.
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Private
Mortgage Insurance
PMI, Private Mortgage
Insurance, might be just what you need to qualify for a loan. If you don’t have
20% percent for a down payment, PMI may give a lender the security they require to loan
their money to you. Ask your loan consultant how PMI can actually help first-time buyers,
or those looking to leverage their money with a low down payment.
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Refinancing
When changing the financing on your
home for any reason, always compare the cost of that refinancing to the benefits. If you
just want to lower your interest rate, be sure that refinancing costs don’t far
exceed the benefit of reducing your rate. Or, if you want to access the equity in your
home to free-up some cash, be sure that your loan consultant provides you with an analysis
that fully explains the financial impact of a new loan compared to the terms of your
existing mortgage.
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Your Own Bank
When selecting a lender, you may
be inclined to consider the institution where you do your everyday banking
in hope of getting a better deal and better service because they
"know you". Unfortunately, this is not really the case.
Virtually all residential lenders must follow the same rules to qualify
borrowers and some banks have even stricter requirements. And due to their
relatively high cost structure banks will often originate your loan
through a remotely located, regional "call center" staffed by personnel
with limited experience and training. The result often leads to an
inferior customer service experience at a higher cost.
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Mortgage
Brokers
Mortgage brokers are not limited to
a single lending source. They can offer conventional loans, federally
approved programs like FHA and VA and private investor programs. A full
service mortgage broker can match your specific loan requirements
with any lender, including government sources. As a result of the new
National Mortgage Licensing System (NMLS) requirements, mortgage brokers
must now meet more extensive licensing, training and education
requirements than the typical bank loan originator. These licensing
requirements combined with a lower cost structure means a mortgage broker
can usually offer a better, more efficient experience at a price that will
"beat the bank".
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