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Mortgage loans: Shop for your home loan first

[Nov 23, 2010.]


Buying a home is a big decision, and the last thing you need is more stress. By doing some thoughtful planning and shopping for home loans before you start your home search, you'll gain several advantages:

  • Get pre-approved: Having a pre-approval for your mortgage loan lets sellers know that you're ready to buy. You can avoid last-minute problems with loan approval that can cause delays.
  • Establish affordability: Mortgage pre-approval lets you know how much you can borrow, and how much you can afford to pay for a home.
  • Understand and compare home loan programs: In addition to conventional mortgage loans, you may want to consider VA or FHA loans, as well as local down payment assistance programs for first time buyers. (A first time buyer is typically defined as anyone who hasn't owned a home within the 3 years prior to applying for a housing finance program).
  • Request and review mortgage quotes: This process can help with finding your best mortgage deals, and for negotiating with lenders. Compare the annual percentage rate (APR) for each mortgage quote, as this provides a more accurate idea of what each mortgage can potentially cost.
  • Know your credit score: How much you'll pay for a mortgage depends in part on your credit score. A couple of major lenders are now requiring minimum FICO scores of 640 for FHA backed home loans, although FHA requires a minimum credit score of 580 for loans with a 3.5 percent down payment. The higher your credit score, the lower your mortgage rate and loan costs.
  • Know how long you plan to keep your new home: If you're buying a "starter" home with the idea of trading up in a few years, a hybrid adjustable-rate mortgage (ARM) may work for you. A hybrid ARM provides a low fixed rate for an initial period of a few years, then converts to an adjustable rate mortgage. If you plan to sell before the low fixed interest rate expires, this type of loan may be a good deal. Be aware that some loans may include pre-payment penalties which can reduce potential savings if you pay them off before a specified date.

Discuss your plans and home buying needs with real estate professionals, mortgage lenders, and your financial advisor. Taking time to compare and negotiate mortgage quotes and verify answers to your mortgage questions can help prevent misunderstandings and potentially costly mistakes.


About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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