Secure A Home Loan

This is part 6 of a series of 7 articles that guide potential buyers through the home buying process. These articles provide insight and suggestions to help homebuyers find the home of their dreams.

Step One: Get Your Finances In Order
Step Two: Find An Agent
Step Three: Get Pre-Approved For A Home Loan
Step Four: House Hunting
Step Five: Make An Offer They Can't Refuse

It’s easy to get confused at this stage in the home buying process. You’ve found your dream home, made an offer and you’ve been accepted – everything is falling into place! However, there are several things you need to get in order before the bank hands over your loan and you get to move into your new house.

If you’ve followed our steps then you’ve already chosen a mortgage lender and been pre-approved. What’s left now is to choose the right mortgage loan based on your financial situation, read the fine print and most importantly coordinate with service providers to get all of your insurance and an appraisal done for your lender.

1. Choose the right mortgage

You should already have the right lender but now is the time to zero in on the right mortgage loan for you and your financial situation. The most common decision home buyers need to make is whether to choose an adjustable rate and fixed rate mortgage loan.

Adjustable-Rate Mortgage

An adjustable-rate mortgage or ARM adjusts over time. Initially the ARM will get you an interest rate that is lower than a fixed rate loan which can last anywhere from six months to several years. When your rate adjusts it will reflect current economic trends. That means your rate could go down or slowly creep up over time. Make sure you know the specifics if you go with an ARM like if there is a cap on how high the rate can go, starting interest rates and adjustment schedules.

Fixed-Rate Mortgage

A fixed-rate mortgage is the most popular for home buyers because it is predictable and easier to budget and plan. You can choose a 10, 15, 20 or 30 year fixed-rate mortgage however 30 years is the most common because it gives buyers the luxury of more time and lower monthly payments. Fixed-rate mortgages can be frustrating if rates drop but you’ll be sitting pretty if they spike up and you don’t have to worry about it.

2. Read the fine print

There’s more to a mortgage loan than just the amount and interest rate you for which you qualify. Pay close attention to points, prepayment penalties, the loan term, application fees, credit report fees and all those contingencies that go along with the loan. Prepayment penalties could be a big problem if you would like to pay off your mortgage early which has become popular recently among homeowners. Make sure you won’t be penalized for simply trying to pay down your principal faster in the event that your financial situation allows you to.

Let’s go over what points are for your mortgage in case you don’t know. A point is 1% of the total amount of the mortgage loan. Points come in two forms, origination and discount points. Origination points are paid to a broker when they process your loan.

For example if your loan is for $400,000 and you are charged 2 points, this will cost you $8,000 paid at closing. Discount points are paid upfront in exchange for lowering your interest rate. Beware of discount points; they are only worth the money if you plan to keep your loan for many years.

3. Coordinating with service providers

There are several third party items that need to be lined up and taken care of before you can get approved for a home loan. Third party items include an appraisal, homeowners insurance and title insurance. Each of these is a failsafe for your home and need to be obtained in order for your lender to confidently loan you hundreds of thousands of dollars for your mortgage. It’s important to hire trusted professionals for each of these services so ask your lender or agent for recommendations.

Home Appraisal

Lenders require appraisers to confirm that your home’s value is equal to the amount you’re asking for in order to buy it. It’s important to hire an appraiser who is trusted and familiar with your area so that you get an accurate appraisal value. With the appraiser and will all of your third party service providers, your agent or lender should be able to help you find trusted companies and individuals to work with.

Homeowners Insurance

It’s important to get the home inspection done before the title insurance can go through. Homeowners insurance protects both you and the lender from problems like fire, flood, tornados or other major damages on your house. Homeowners insurance covers against damage to your home, its contents and if you or a family member is held liable for injuries to others or property damage.

Title Insurance

The title to a property is ownership.  So when you buy a house, a title company will look into the chain of titles or previous owners to insure you will be able to obtain a clear title to the property. Other parties may have rights to things such as mortgages, liens due for unpaid taxes or monies owed for home improvement projects. To protect yourself against unforeseen problems with the title, you need title insurance.

Stay tuned next week when we dive into the final step in the home buying process - the closing process.

If you are looking to find the home of your dreams and would like guidance in the process, call or email us at First Team. Our agents have the professional connections, training and skills to help you succeed in the home buying process. Email us at clientservices [at] firstteam.com or call 888-870-1142 and we’ll connect you with a top agent.

Buyers - What are your biggest concerns about securing financing for your home loan?

Agents - What do you think is the most important thing for buyers to keep in mind when securing their home loan?

 Originally posted at: http://www.firstteam.com/blog/?p=7627