Financing Tips

What Type of Loan Should I Apply For?

Selecting a loan that is right for you can be a tricky proposition. You will need to obtain a loan that will allow you to purchase the home you want, while securing monthly payments you can afford.

If you are planning to move within a few years, you may want to apply for an adjustable-rate mortgage (ARM). The initial rate will usually be substantially less than with a fixed-rate mortgage, making your monthly payments lower. These loans are generally easier to obtain than fixed-rate mortgages.

However, if you plan on staying in the home for more than a few years and want the security of set payments, opt for a fixed-rate mortgage. You will know going into the purchase exactly how much your payments will be for the life of the loan. This is especially desirable for individuals on fixed budgets or for those who don't expect their income to increase significantly in the future.

To make a final decision, contact your financial institution and have a professional evaluate your current financial position along with your future needs.

Be Ready for the Lender

When applying for a mortgage, there are some things you can do to prepare yourself for the lender. Since you'll be asked to provide a lot of documentation, it will help to get some of it prepared ahead of time.

Every financial institution is different, so you may want to call your lender and ask what information you will be required to have on hand. The following is some basic information that you will be asked to provide:

• Your current and former addresses.
• Social Security card.
• Verification of monthly and annual income.
• Information about outstanding debts.
• Your place of employment and how long you've been there.
• Bank statements for the previous two months.
• Information about stocks, property or other assets.
• A copy of your sales contract.

After you turn in your loan application, your lender will verify all of the information, check your credit history, and get an appraisal to determine the value of the property you are trying to buy. The lender will also order a title search and obtain required insurance documentation. Once this information is gathered, the lender will review everything to determine whether your loan will be approved.

Mortgage Brokers and Buyers

Low interest rates have enticed thousands to seek funding for a new home or to refinance an existing mortgage. This surge has created a demand for mortgage brokers, whose job it is to help borrowers complete applications and secure loan rates. It is estimated that brokers process hundreds of billions of dollars in mortgages every year. If you are thinking of buying a home or refinancing your existing one, here are some tips for finding a qualified broker to help:

• Get good references. If you want the help of a mortgage broker, ask friends or a trusted professional at your bank for a recommendation. If your state requires brokers to be licensed, check with the licensing board to see if the broker who was recommended has a good reputation, not to mention a permit.
• Ask about lender representation. Generally, the better the broker, the more banks and other mortgage lenders that professional probably represents, and the more likely that you'll get the lowest rate. A quality broker usually represents at least 10 lenders.
• Get an upfront estimate. This won't be a problem because federal law requires mortgage brokers to provide clients with a written estimate of the total cost of their mortgage transaction no later than three days after applying.
• Be careful about fees. Brokers receive most of their compensation from lenders, who pay them a small commission on the mortgage deal. You'll typically be charged an application fee, which many experts say shouldn't exceed $300. You might also be asked to advance up to $750 for various appraisals and reports. If you're asked to pay more than you expected, ask your broker for a detailed explanation of all costs. You may find that you do not need all the services your broker offers.