After spending some of my time working in a bank, I have seen quite a few people go through the process of home mortgage loans, from application to closing and on into the payment process.
The amount for which you can qualify on home mortgage loans is based on three different things: income, available cash and credit history. Lenders plan for a reasonable percentage of your income to go toward monthly payments. They also look at how much cash you have to use for a down payment on the house and to use for closing costs. Your credit history also has an impact on the amount you can borrow on home mortgage loans. If lenders see your credit history as a threat, they may choose to approve you for a lower loan or not at all.
When you make the important decision to buy a house, you want to find the best loan possible, of course. One of the first steps in your search for home mortgage loans is a quick Internet search for current interest rates. This knowledge will give you a benchmark from which to gauge any quotes you receive on home mortgage loans. You may even be able to find an Internet site for home mortgage loans. Be aware, these Internet home mortgage loans work best for experienced buyers who have been through the process before.
Then, call various lenders in your area. Ask for their interest rates on home mortgage loans. Some may be apprehensive to give rates over the phone, so you may actually have to go “shopping” in person. This process can take a while, but will benefit you in the long run. When lenders know they are competing for your business, they will work harder to give you the best rate, and possibly cut some of the extra costs.
When you find the lender with whom you would like to work, you can decide whether or not to “lock in” the rate. Discuss the pros and cons with your loan officer. Ask him or her if the rates on home mortgage loans go down again, if you will be able to get to have the lower rate. If you do not lock in your rate and rates on home mortgage loans go up, ask if you will be obligated to the higher rate.
Home mortgage loans come with either fixed or adjustable rates. Fixed-rate home mortgage loans are set so you pay the same monthly payments and same interest for the entire term of the loan. Adjustable-rate home mortgage loans are set so the interest stays the same for an initial period (which can range from one to seven years, depending on the institution and the home mortgage loans) and then can adjust up or down, depending on current rates and a rate index. Fixed-rate home mortgage loans are best if you plan to stay in your home for several years. Adjustable-rate mortgages are best if you plan on moving within a few years or think the rates will go down.
The term of your mortgage will have a big impact on how much you pay in interest. If you choose a 15-year term, you will end up paying off your loan and owning your own home in half the time of a 30-year loan. The savings in interest can be in the hundreds of thousands of dollars, depending on the interest rate and down payment of different home mortgage loans. A little more monthly payment can mean big savings to you in the end.
When it comes time to finish up the paperwork and go to the closing, you will have to pay closing costs, which usually range from about 2% to 3% of the entire loan amount. Some lenders will add this onto your monthly payment, but most require this in cash upfront. The lender should give you an idea of the closing costs shortly after you apply for the loan. Closing costs cover your application, credit report, the appraisal, any points you pay to lower your interest rate, the title exam, title insurance, recording fee, taxes, and anything else required by the institution or your state.
By D. Blair Thompson