Before starting your search for a home mortgage, there are a few things to consider:
1) Most importantly, shop with your mortgage in hand. It’s a fiercely competitive market out there with more buyers than there are houses for sale. So, you’ll need to win the house once you find it. Take the time to get pre-qualified for a mortgage, which will enable you to make an 'all cash' offer rather than one 'contingent on financing.' You don’t want to lose your dream home simply because the winning buyers were smart enough to be pre-qualified for their mortgage in advance. How long do you expect to live in your new home?
2) If you’re buying your house for the long-term, consider a conventional rate mortgage. But if you are more like the average American who moves every seven years, a short-term variable rate mortgage might best work for you. As every length of loan, from one to 30 years, is available today, pick the one that suites your timetable.
3) Are you expecting mortgage rates to move up or down? Rates have been fairly stable over the past few months and some have come down a bit. Most economists predict rates to remain stable until we see clear signs of inflation, but that’s their opinion. If you think rates will be going up over the next few years, lock them in.
4) Are you personally comfortable with risk? You’ll pay more for a conventional loan today, but if you don’t like taking chances, not worrying about rate hikes will allow you to sleep a lot better. If you believe rates might go down and are willing to take the chance you might feel a lot smarter knowing you’ve chosen a short-term adjustable rate.
5) Origination fees — Beware and compare! This is an upfront payment that can range anywhere from 0-3% of the loan. The more points you pay up front, the lower your interest rate will be. Compare how much you’re really paying up front against the duration of your planned stay in your new house.
6) Challenge hidden fees. Lenders typically arrange for various services provided by third parties such as credit reports, property appraisals, and title searches. Lenders create their own prices for these services to make a bigger profit on each loan. Other hidden fees include document storage, notary fees, fax machine use, and document preparation. Ask each lender to provide you with a good faith estimate of closing costs so that you have them in hand to compare. Lenders often negotiate on the fees.
This weekend our Business Block has much more on real estate. Tune in Saturday 10am - noon ET.