My Financial Ally
   Home, Car, Credit Cards, Savings, Credit Score

 
 

Getting the Right Mortgage

Before you start looking for the right mortgage please make sure that you know what the following terms mean:

30yr or 15yr -- Fixed Rate Adjustable Rate Mortgages (ARM's)
Interest Rate vs. APR Points
Jumbo Private Mortgage Insurance (PMI)
Equity Loan to Value

When choosing a mortgage, two important questions have to be answered first. Those two questions are:

  • How long do you plan on keeping your home?
  • How much money are you prepared to put down?

How long do you plan on keeping your home?

Deciding the amount of time you plan on staying in a home is very crucial. When choosing the length of time you intend to live in your home, be conservative and answer by deciding on the longest time you can see yourself living in that house. Making the proper decision here is very important in order to avoid any surprises with the future loan payments of your home.

Once you know the answer to this question then you know the mortgage type(s) that you should be looking for!

More specifically, you should start looking for either a 30 year fixed mortgage or for an ARM mortgage, where the length of the fixed period is longer than your answer to this question. For example, if your answer is 4 years, then look only for a 5/1ARM, a 7/1 ARM, a 10/1ARM, and a 30 year fixed mortgage.

If you had trouble answering this question because you can see yourself living in that home for more than 10 years then look only for 30yr fixed mortgages. This way, you will not have to worry about any future interest spikes. It would be pointless, for example, if you were to take out an ARM that had a fixed period that lasted for 5 years if you were planning to live in the house for 7 years. After the fixed rate period ended, you would be faced with the uncertainty of fluctuating interest rates every month.

How much money are you prepared to put down?

The next question you have to ask is how much you will be able to afford on your down payment. The down payment is immensely important to any homeowner. The reason why it is important is that your down payment is the only variable that you have control over. You cannot change your credit score, income, the price of your home, etc. so your down payment is the only thing that you can control, and depending on what the ratio of the loan amount relative to the equity in the home is (also known as the Loan to Value ratio), the interest rate of the loan can change. The lower the down payment, the lower the ratio, and the higher the interest rate.


Where to look for a mortgage?

Brokers are better than banks when shopping for mortgages. This is because they represent all the major banks and you do not waste time applying individually at each bank, which is a very lengthy process.

The two most important questions you should ask other than the interest rates & fees of their mortgages are:

  • How many banks do you represent?
  • Can you meet my closing date? And what guarantees do you provide that you will be able to meet the closing date?
Lending tree, quicken loans, or a referral from Real Estate agent to a broker that represents multiple banks are all great ways to find an appropriate broker. Do not underestimate how important it is not only to get a great deal but also to find a firm that is reputable and will be able to have the loan ready by the closing date.

Other Mortgage Types -- Not recommended

There are other types of mortgages, but none of them possess the same quality and surety as the others that we have covered. Thus, they are neither discussed nor talked about in this section. For more details on other mortgage types, click here.

 

Best of luck,
Your Financial Ally