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Shopping for a Mortgage: All loans are NOT created equal

Never before has there been such a wide range of sources for home mortgages. Though many alternatives exist, traditional lenders such as community banks, savings and loan companies and credit unions may very well be your first and best choice for a mortgage.

Where do I look?
You probably already have a relationship with your credit union for your checking account. You might also have a savings account or a credit card or a car loan. Odds are, you have chosen to do business with your financial institution for a good reason – competitive rates, superior service, convenience, etc.

Following that logic, it just makes sense that this should be your first stop when shopping for a mortgage. You may be surprised to discover your credit union has the best terms but you don’t know about it, simply because they don’t cram your mailbox full of solicitations and fill the airwaves with commercials.

What questions do I ask?
What a mortgage is going to cost will depend only in part on the interest rate, so make sure your inquiry goes beyond just “What’s your rate?” Take notes when you visit with lenders about terms. Try to build a basis of comparison of lenders by asking for the same information from each. Here are the basics…

  • Do you do originate first mortgages on homes? You can’t use a service if they don’t offer it.
  • What types of mortgages do you offer? Fixed rates loans? Adjustable rate Mortgages? Balloons? One size does not fit all.
  • What are the current rates for each? Are rates lower with an up-front fee? Depending how long you’ll have the mortgage, buying down the rate by paying a discount fee or “points” can save you money in the long run.
  • How much are closing costs? What other charges or prepaid items are required?
  • What are the requirements for down payments? Will private mortgage insurance be required?
  • What are your underwriting requirements for debt ratios, time on job, and credit scores?
  • What programs are offered for first time homebuyers?
  • Can I get pre-approved ahead of finding a house?
  • How long will the process take? What can an applicant do to speed it up?
  • How do I apply?

How do I compare?
Look for terms you can live with. You have no use for a lender with the lowest interest rate if the minimum down payment exceeds the amount you’ll have available. Look for the combination of down payment, closing costs and prepaid expenses. Combined, these make up your up-front costs. Next look at the monthly payments for the total for principle and interest on your loan and private mortgage insurance (if necessary).

Choosing a lender with a higher interest rate might be the best move if the closing costs are hundreds of dollars less in a situation where you are only going to be in the house a couple years. Higher rate and higher closing costs might be the best deal in a situation where the lender doesn’t require the borrower to pay private mortgage insurance premiums.

For the first time home buyer, this may seem overwhelming, and it may be difficult to absorb every last detail. That’s why you need to work with a mortgage lender you can trust. After all, you likely don’t want to get bogged down in an exhaustive analysis of your options. Check out the likely lenders, ask questions, make a sensible choice and get on with the application!

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