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What You Need To
Think About When Look For A home loan?
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The type of lender you choose and the type of loan you eventually end
up with is going to influence several things. It'll influence how much
your mortgage is going to cost on a month-to-month basis, and it's also
going to influence how much is paid in settlement. There are lots of
lenders and lots of different types of loans to choose from.
A mortgage broker
Mortgage companies or brokers find you mortgage lenders who are willing
to give you a loan. If the mortgage broker is independent, he or she
may not actually be operating as your representative. Before you decide
to go with a mortgage broker, ask what fees the mortgage broker will
get and who's going to pay them.
Programs from the government
You may qualify for a loan from the federal government, through the
Federal Housing Administration, or one guaranteed by the Department of
Veterans Affairs. Your state or city may also have similar programs.
These types of programs usually require a smaller down payment and more
favorable financing terms and interest rates.
Computer loan origination systems, or CLOs
Computer loan origination systems or terminals are often available in
locations such as real estate offices so that you can sort through
different types of loans offered by different lenders before you start
your search.
Types of loans offered
Loans can have either fixed or variable interest rates. With a fixed
interest rate, you generally pay a loan for, say, a 30-year term, and
the payments stay the same month-to-month. The interest and principal
amounts stay the same every month. By contrast, variable loans, such as
adjustable-rate mortgages, can change after what is usually a fixed
rate of time, like five years. Adjustable-rate mortgages, also known as
ARMs, can be beneficial, but they can also be detrimental because they
can often make previously affordable payments suddenly unaffordable;
that's because the interest rate can jump up markedly after a period of
about five years.
Interest-rate and other fees
Most people know what the interest rate on a home mortgage is, and will
go for one that's more favorable; for example, some loan terms these
days are under 5%. However, there's another important element, the
number of points with a particular mortgage loan. A point is a fee that
equals 1% of the loan amount.
Other settlement costs
In some cases, your lender may ask you to pay certain settlement
services, like mortgage insurance, title insurance, or a new survey.
It's a good idea to ask for an estimation of settlement costs and fees
before you actually choose your lender.
Rate lock-ins
If you lock in your points or your rate of interest at the time of your
application, this means these things can't change until settlement or
closing of escrow. Your lender may charge you fees for this as well.
Taxes and insurance
Taxes and insurance may be included in mortgage payments, and/or it can
be deposited into an escrow account so that these things can be paid by
the lender.
Loan transfers
After settlement, you may find that another company besides your
original lender will be collecting payments on your loan. This is known
as "servicing" your loan, and your lender should tell you if it expects
to transfer the servicing to someone else after settlement.
Flood insurance
If you buy your home in a flood hazard area, you're probably going to
have to buy flood insurance before a lender will lend you the money to
buy her home. If you buy your home with government loan programs, you
may not be allowed to buy a home in flood hazard areas. Your lender
should notify you if you need flood insurance or if you're not eligible
to work with that lender because you want to buy a home in a flood
hazard area.
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