You heard on the news that rates are at historical lows. Or maybe a friend just got a fantastic deal on a refinance. Whatever the motivation, you’re back in the market for a mortgage. Only, with all the turmoil in the markets and financial industry in the past couple of years, you’re not sure where to begin. Fed to the rescue!
(Aside: Don’t you think it would be way more fun if Federal Reserve Chairman Ben Bernanke — at right — wore a superhero costume?!)
Those super smart money guys who run our central banking system, also known as the Federal Reserve Board, have come up with 5 tips for shopping for a mortgage. (The tips are the Fed’s, the commentary is mine.)
5 Tips for Shopping for a Home Loan
- Know what you can afford. Take a look at your monthly budget and determine how much you can afford to shell out for a monthly mortgage payment, property taxes, insurance, monthly maintenance and utilities. Don’t have a budget? Don’t worry, Quizzle’s got you covered. We’ve put together a simple personal budget worksheet so you can easily figure out how much money is coming in each month and how much money <sigh> is going out. Click here to get started with your very own personal budgeting tool.
- Shop around — compare loans from lenders and brokers. It’s important to know your options. Different lenders offer different home loan programs, so call around so you know what’s out there.
- Understand loan prices and fees. Pricing and fees may vary among lenders and brokers, even on the same exact loan program. Make sure you understand what you’re being charged for and what expenses to expect at closing.
- Know the risks and benefits of loan options. Home loans have different features – as well as different risks and benefits. Some mortgages have a fixed rate, in which the interest rate remains the same for the life of the loan. Other mortgages have adjustable rates, in which the rate adjusts (maybe up, maybe down) after a set period of time. Still other mortgages may include a penalty if you pay off your loan early. Whatever loan you opt for, make sure you understand all its features, including the APR (annual percentage rate) and the settlement costs.
- Get advice from trusted sources. Getting a home loan is an important financial transaction and maybe even the largest financial transaction you’ll ever make. Ask questions. Do your homework. Have a real estate attorney that you hire review your documents before you sign them. You may also want to consult with a housing counselor.
When figuring out how much you can afford, you should plan ahead to make sure you’ll be able to afford your monthly payments for several years. No one knows for sure what their situation will be in, say, three to five years, but make a best guess and protect yourself against the unknown with an emergency savings fund. In Quizzle, we recommend you have at least four months of income in your Rainy Day Fund. Let Quizzle keep track of your emergency savings for you.
Another important part of determining how much you can afford is checking your credit report and making sure everything’s accurate. A high credit score will help you qualify for the best interest rate and terms. And, ahem, it just so happens that Quizzle will give you a totally free credit report and free credit score so you can find out where you stand.
It’s also important to know the difference between a direct lender and a mortgage broker. A direct lender does exactly what the name implies, lends you money directly. Direct lenders are typically licensed to lend funds in all 50 states. A broker, on the other hand, may do some of the leg-work for you and puts together a variety of home loan options from different direct lenders. A broker may only be licensed in a handful of states.
Whether you opt to do business with a direct lender, like Quicken Loans, or a mortgage broker, it’s up to you to do the appropriate research and shopping.
Also keep in mind that a broker’s fees may cost more than a direct lender’s fees because you’re paying for the broker’s leg-work on top of the lender’s fees.
Need a little guidance? Ask your mortgage banker to calculate how much your monthly payments could be a year from now, five years from now and 10 years from now. And if possible, avoid pre-payment penalties – fees you incur if you pay off your mortgage early.
Ultimately, understanding your options — and the home loan you choose — is the most important thing you can do in the mortgage shopping process. Consult with a trusted home loan expert and don’t be afraid to ask questions.
Still not sure? We can connect you with a Quicken Loans Home Loan Expert who will be happy to walk you through the process, offer you home loan options that are right for your personal situation and goals, and continue to follow up with you for the life of the loan so you can be sure you’re always in the right mortgage situation. Call 1-800-QUIZZLE (1-800-784-9953) or click “Contact an Expert” when logged into Quizzle.