5 Tips for Mortgage Shopping

Home mortgage is one of the biggest loans most individuals borrow during their lifetimes. Yet, most borrowers enter the process of obtaining a home mortgage without a solid game plan, which can potentially cost them thousands of dollars more every year in mortgage. Here are some of the useful tips to follow while shopping for a home mortgage: 

  1. Know what you can afford: Buying more than what you can afford can potentially ruin your financial well-being. Assess your earning potentials and calculate your monthly expenditures to make sure you will be able to pay your mortgage, taxes, insurance, maintenance, and utilities, as well as pay for emergencies, for several years. A conservative approach is to borrow 10% to 15% less than what you can afford. Mortgage calculators can help you determine the amount you can borrow based on factors such as, what monthly mortgage payment you can afford, type of loan best suited for your situation, your credit score, interest rate, etc. 
  2. Learn about various loan options you may qualify for: There are different types of mortgages (fixed rate mortgage, adjustable rate mortgage, hybrid, etc.), each with various options (20-year fixed, 5/1 ARM, convertible ARM, balloon payment, etc.) and features (early payment penalty, assumability, portability, etc.) offered as either conventional (non-government insured) or government-insured (FHA, VA, USDA, etc.) loans. Furthermore, they can be classified as a conforming loan or a jumbo loan, depending on the amount you need to borrow. Do your own research and/or work with your mortgage broker or lender to learn about various mortgages you may qualify for, and understand the pros and cons of each to select the one that is best suited for your situation. 
  3. Understand actual loan cost: Once you have determined the type of loan best suited for your needs, before embarking on a shopping tour, understand the actual cost of that loan. The actual loan cost includes not just the interest rate, but also various fees that may be associated with securing that loan. Some of the lender-related fees may include discount points, origination fee, application fee, credit report fee, private mortgage insurance, title insurance fee, appraisal fee, etc. Other fees may include homeowner insurance, title insurance, recording fee, attorney fee, survey fee, etc. Never hesitate to ask questions about all fees – why they are charged and how they are calculated.
  4. Shop around: With the knowledge acquired while going through the above three steps, now you are ready to go comparison-shopping for the type of mortgage you need. You can get a mortgage from mortgage lenders or mortgage brokers. You can either contact a bunch of different mortgage lenders and compare their interest rates and fees with one another to determine the least expensive one, or you can work with a mortgage broker who typically represents many mortgage lenders and therefore can do this comparison shopping for you. Think of mortgage brokers as your mortgage “personal shoppers”. Mortgage brokers also handle all the paperwork and coordinate with all the parties involved in a mortgage transaction.
  5. Know your rights: Fair lending is required by law. The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act. The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin. Under these laws, a consumer may  be refused a loan based on these characteristics, nor be charged more for a loan or offered less favorable terms based on such characteristics. 

Congratulations on finding your dream home and best of luck finding the best mortgage!

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