Vanessa Duguerre's Blog
When financing a home purchase, one of the most basic decisions to make is where to get your mortgage from. The basic options are whether you should go to a mortgage lender or not. Financing with a mortgage lender has both pros and cons.
Pro: Many Loan Options
If you go to a mortgage lender, you’ll find that they offer a great amount of choices. These are essentially brokers for various underwriting companies, and they offer many loan options. You’ll also have a wide variety of mortgage setups to choose from. Whether you want a 15-, 30- or 40-year fixed or some sort of variable loan, you can likely find it through a lender.
Pro: Might Be Able to Negotiate
The choices that mortgage lenders provide sometimes make it possible to negotiate with potential lenders. If you can pit multiple lenders against each other, you might be able to get a lower interest rate or complimentary points on your loan. A lender might even try to negotiate on your behalf.
Pro: Knowledgeable Guidance
At a mortgage lender, you’ll work with a loan officer whose sole job is to help homeowners find mortgages. They’ll be knowledgeable and able to provide you with informed guidance throughout the loan application and selection process.
Con: Might Not Be Local
Should you shop loans with a mortgage lender, it might not be someone local to your area who’s providing assistance. Often mortgage lenders service people across a state and even maybe in multiple states. As a result, there’s a good chance you won’t ever meet them in person.
Con: Might Sell Your Loan
Ultimately, mortgage lenders are in the business of underwriting and managing mortgages -- and that’s not necessarily the customer service business. If a lender deems it financially prudent to, they’ll sell your loan to another lender. Not only will you not deal with the same person or office, but you might not even deal with the same company down the road. Since mortgages last many years, there’s a chance yours could be sold multiple times.
Finding a Mortgage is a Personal Choice
A mortgage lender may be a good option if you’re looking for a great deal on a home loan, but they don’t offer a personal touch. If you want someone in your area and prioritize personal service, a credit union or other more local institution might be a better alternative for you. The decision to go through a mortgage lender or another place ultimately depends on what type of experience you want.
Getting pre-approved for a mortgage may prove to be a long, arduous process if you are not careful. Fortunately, homebuyers who plan ahead should have no trouble obtaining a mortgage so they can enter the housing market with a budget in hand.
Ultimately, there are many questions to consider as you assess your mortgage options, and these questions include:
1. What type of mortgage should I get?
The two most common types of mortgages are adjustable- and fixed-rate varieties. If you understand the differences between these mortgage options, you can make an informed mortgage decision.
An adjustable-rate mortgage generally features a lower initial interest rate than a fixed-rate option. However, after a set amount of time, an adjustable-rate mortgage's interest rate will increase.
Comparatively, a fixed-rate mortgage has an interest rate that will remain intact for the life of your mortgage. This means you will pay the same amount each month until your mortgage is paid in full.
When it comes to deciding between an adjustable- and fixed-rate mortgage, it pays to look at the pros and cons of both options. Remember, no two homebuyers are exactly alike, and a mortgage that works well for one buyer may not work well for another. But if you evaluate adjustable- and fixed-rate mortgages closely, you can make the best-possible decision.
2. What differentiates an ordinary lender from an outstanding one?
There is no need to settle for an "ordinary" lender as you pursue mortgage options. Instead, you should seek out an exceptional lender that goes above and beyond the call of duty to assist you.
Typically, an outstanding lender employs mortgage specialists who are ready to respond to any concerns or questions. These specialists can help you evaluate a broad array of mortgage options and decide which mortgage best suits your individual needs.
Don't be afraid to meet with several banks and credit unions, either. This will allow you to assess many lenders and select one that matches or exceeds your expectations.
3. Which mortgage should I select?
There is no one-size-fits-all mortgage that works well for all homebuyers, at all times. As such, you should conduct plenty of research as you explore your mortgage options. This research will enable you to analyze assorted mortgages and lenders and make the optimal choices.
Once you have a mortgage, you can move one step closer to acquiring your dream house. And if you collaborate with a real estate agent, you can receive expert support at each stage of the homebuying journey.
A real estate agent is a must-have for any homebuyer, regardless of the current housing market's conditions. This housing market professional can teach you everything you need to know about buying a house. Also, he or she can help you examine a vast collection of available houses.
Ready to kick off a house search? Get pre-approved for a mortgage, and you can enter the housing market with a homebuying budget at your disposal.
Deciphering credit scoresMost major lenders assign your credit score based on the information provided by three national credit bureaus: Equifax, Experian, and TransUnion. These companies report your credit history to FICO, who give you a score from 300 to 850 (850 being the best your score can get). When applying for a mortgage (or attempting to be pre-approved for a home loan), the lender you choose will weight several aspects to determine if they will lend money to you and under what terms they will lend you the money. Among these are your employment status, current salary, your savings and assets, and your credit score. Lenders use this data to attempt to determine how likely you are to pay off your debt. To be considered a "safe" person to lend money to it will require a combination of things, including good credit. What is good credit? Credit scores are based on five components:
- 35%: your payment history
- 30%: your debt amount
- 15%: length of your credit history
- 10%: types of credit you have used
- 10%: recent credit inquiries (such as taking out new loans or opening new credit cards)
What does this mean for taking out mortgages?A higher credit score will get you a lower interest rate. By the time you pay off your mortgage, just a hundred points on your credit score could save you thousands on your mortgage, and that's not including the money you might save by getting lower interest rates on other loans as well. If you would like to buy a home within the next few years, take this time to focus on building your credit score:
- If you have high balances, do your best to lower them
- If you have a tendency to miss payments, set recurring reminders in your phone to make sure you pay on time
- If you don't have diverse credit, it could be a good time to take out a loan or open your first credit card
If you’re finding that your finances are a bit tighter these days, you might need to adjust your budget a bit. Have you ever thought about alternatives in helping you to pay your mortgage? There’s a few things that you might be able to do in your home to save a few bucks and be more comfortable with your budget and finances.
Share The Space
This might sound crazy, but it works for many people. If you’re willing to share your living space with others, it could help you to make a dent in your mortgage. This works especially well if you have a home with a separate entrance like an in-law apartment or something similar.
Make Adjustments To Your Expenses
There are many different costs that come along with owning a home. If you reduce some of these expenses, you’ll be able to cut your overall spending. You don’t need to completely adjust your entire way of living to do this. Some ideas:
- Cut the cord on cable and install streaming devices
- Go on a family cell phone plan
- Skip the gym membership
- Use public transportation
- Cook at home instead of eating out
- Use coupons
Put Tax Refunds To Good Use
If you normally get a tax refund, you can apply that money to your mortgage instead of using it to buy something else. You could also adjust your withholdings. This would allow you to get a bit more money in your paycheck each week. You’ll get less of a refund during tax time, but the extra money may help you to pay down bills throughout the year.
Pay More Towards The Principal
To make the most of your hard-earned savings, use your money wisely and pay down the mortgage faster. Just be sure that there’s no penalty for a prepayment of the loan. You can either make an extra loan payment each month or you can pay a bit over what you owe on the mortgage each month. If you pay the mortgage faster, you’ll save potentially thousands of dollars in interest over the life of the loan. You’ll need to check with your mortgage company to see what their process is for paying more towards the principal of the loan. Keep in mind that the first few years‘ worth of your mortgage payments will be going towards interest unless you specify extra payments to go elsewhere.
Whether you’d like a little more of a financial cushion or are just looking to get rid of all those pesky monthly bills, it’s never a bad idea to focus on paying your mortgage down as quickly as possible.