Saturday, May 14, 2011

3 Simple Questions To Get The Right Mortgage

Are you shopping for a mortgage?

If you have recently heard yourself say something like this:

What kind of loan do you think I should get?

And you got a response from a loan officer that was similar to:

I think that ___________ is the right loan for someone in your situation.

Stop.

There are three simple questions you can ask yourself that will help you narrow down your mortgage product choices.

Knowing these three simple questions can free you from having to use the “ask and hope” strategy— where you simply ask a loan officer and hope they do what is in your best interest.

Three Simple Questions

Getting the right mortgage for your individual situation can be a process of elimination by narrowing down the mortgage programs that won’t work for your situation as well as identifying possible ones that will.

1. How long do I plan on living in the home?

When it comes to home financing, if you buy a home, but plan on moving in 5 years or less, chances are that an adjustable rate mortgage may make sense.

Many adjustable rate mortgages (ARMs) start with a lower interest rate and have limits in place where even if the interest rate goes up in subsequent years, it can only go up — or down — by a certain amount for any 12-month period, as well as limits on how much the rate may go up over the life of the loan.

It is common for adjustable rate mortgage limits to allow your interest rate to rise or fall based on an index (e.g., LIBOR) anywhere from 1-2 percent per year with a maximum increase of 5 percent over the life of the loan.

2. How much money do I have for a down payment?

Different loan programs have different down payment requirements. How much money you are planning for a down payment will impact which loan programs are available. The current down payment requirements for some of the most popular mortgage programs are:

FHA loans – 3.5%
USDA loans – 0
VA loans – 0
Conventional loans – 5%
HomePath loans – 3%

With any of these loan programs, you can obviously put more money down than the minimum requirements and it may save you money over the long term by eliminating mortgage insurance (for example, if you put 20 percent down and get a conventional loan). You can play around with different numbers and the down payment using a mortgage calculator.

3. Does the house need repairs?

With the large number of homes available that are either bank-owned or short sales, more buyers are finding that the home they want to purchase is in need of repairs prior to moving in.

Two of the most popular loan programs designed for homes in need of repairs are the FHA 203k loan program and the HomePath Renovation loan program.

The HomePath Renovation program is only available for homes that are currently owned by Fannie Mae and is only available through a limited number of lenders. The FHA 203k loan program is offered by more lenders and is available for houses other than those currently owned by Fannie Mae making it a much more popular option.

When shopping for a mortgage rate, don’t leave everything up to your loan officer and fall into the “ask and hope” strategy. Arming yourself with these three simple questions can help ensure that you get into the best possible mortgage program for you and your family.

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