Top Five things you must know before Applying for a Mortgage

Buying a house is, for most Americans, the most expensive thing they will purchase in their lives. One must be very careful therefore in this transaction. The purchaser must first decide if he/she is a player. Do you like to handle things like this yourself? Can you dicker with people to get the best deal or speak up for yourself if you think deal is not the best you can obtain? Does a big money transaction worry you or paralyze you? If not, go to it. If so, you need to find someone to do the deal for you.

Before you put in the offer for the house, you need to determine which kind of mortgage you need. Do you want a fixed rate or adjustable rate? If adjustable, over what period: one, three or five years? What term: 20 or 30 years, or something else. If fixed, what interest rate can you live with? How much down payment do you need? How many points are you willing to pay? Finally, what is the lock in period you will settle for? You need to know these things before applying for a mortgage.

You need to know that a quote will vary with different properties. A single family home differs from a skyscraper. You need to know what assumptions are made by the loan officer about your property and make sure they are correct. Does he realize you are building a home for one family?

Mortgages have several features that affect pricing and you are familiar with them. You need to determine the interest rate and the total amount of money you will pay upfront. When you know the points, origination fees and broker fees and your house cost, you can calculate the upfront money you need. You can now shop around to obtain quotes from your various sources for mortgage money. If you use an adjustable rate and plan to live in the house for the full term of the mortgage you must clearly establish what it will cost over the whole period and if you can afford the increases. If you plan to have a five year adjustable and sell and move before five years, it can be treated as a fixed rate mortgage.

Locking in the price of your mortgage can be very important when rates can change quickly. Some lenders require full applications and others very little before allowing you to lock in. Find out what your lender wants so you can move quickly if so desired when you find your dream house.

You need to know that in locking in a loan, you are only locking in the interest rate and the points. The lender’s fee is not locked in and is shown as a good faith estimate. This may not get to the borrower in time. Moreover, the lender is not bound by this estimate. One could pay more to less than honest lender. When was the last time you read a contract completely? The buyer does not usually see his mortgage settlement contract until the closing. Rarely do we do anything but sign it. If something is put into the contract and you sign it, you live with it. Prepayment penalties are added sometimes as a rider that one does not pick up on. One needs to watch all these points to stay ahead in the mortgage game.