What to Look for When Getting a Mortgage
Here are several tips that will make your mortgage experience go more smoothly:
Don’t go house hunting without mortgage pre-approval: Imagine the frustration of finding the perfect home—and then suddenly realizing you can’t afford it. Better idea: find out how much mortgage financing you qualify for before your shop. Then, you can go house hunting with the confidence of a cash buyer. Being pre-approved for a specific mortgage amount gives you another advantage as well: it tells the home seller that you’re a serious buyer and ready to make an offer.
Don’t choose a mortgage by a low interest rate alone: It’s easy to be attracted to the lowest interest rate, but what you should really focus on is the total cost of the mortgage you want. The annual percentage rate (APR) is designed to help you more easily make apples-to-apples comparisons among mortgages. The APR includes costs beyond the interest rate alone, such as discount points (which reduce the interest rate) and origination points (which offset the lender’s costs to originate the loan).
Lock your interest rate: Mortgage interest rates change constantly—sometimes, more than once in a single day. The rate your mortgage lender quotes you isn’t guaranteed until it’s “locked in.” So when you find a rate you can live with, lock it up. Keep in mind that rates are locked for a specific time, such as seven days, two weeks or a month.
Know what you’re saying “yes” to: Be sure you understand how your mortgage works. If you’ve found an interest rate and monthly payment that seem too good to be true, you may want to consider. For example, interest-only mortgages can have extremely attractive rates. But as the name says, you’re just paying interest and not reducing your principal. For some buyers, that’s an ideal situation. But if it’s not yours, then that type of mortgage isn’t for you.
Understand your Good Faith Estimate: Three days after you submit your loan application, you should get a Good Faith Estimate (GFE), which is a written statement of what your mortgage fees will be. The GFE is required by law for a good reason: it helps borrowers understand what to expect at the closing table. When you sign your loan documents, the fees you pay shouldn’t differ substantially from the GFE.
Read your loan documents: As the mortgage borrower, it’s your responsibility to read, understand and accept the terms of your new mortgage. They’re all right there, in your loan documents. So take the time to read them at the closing table. It can seem overwhelming, but remember, you’re making a commitment that will affect your financial future for years to come. If you see something you don’t understand, don’t be afraid to ask.