April 11, 2019
Hi Everybody! My name is Ty Eden. I’m with Exit Realty Redefined in Wheaton IL and I am a realtor for about 2 years and I work with buyers, sellers, and investors throughout the Dupage county northern Illinois Chicago area. I am bringing to you a video for you first time home buyers that is looking to figure out how do you shop for mortgage.
Do you want to know how to not be in debt with a mortgage? here are some points right now.
Now if buying a home is the largest purchase that you make in your lifetime, the mortgage you secure is probably the largest debt that you ever going to have in your lifetime as well. A mortgage is a long-term financial obligation and the mortgage rate that you pay substantially affects the overall cost of that mortgage. Just the half percent of interest difference could affect your overall payment by thousands, tenths of thousands of dollars over the life of the loan. Now here are some steps that you need to follow;
Now lenders will generally run your credit in order to get a credit score because that determines if you qualify, and what type of loan are you qualified for. Generally, the higher your credit score is, the better terms you have, the lower the interest rate, the less money that you’ll pay. The best plan of attack is before you shop for a house, go out and get your credit score run. So, when the time comes when you are actually ready to shop for your mortgage or a house. You want to make sure that you get your credit score as high of a number that you possibly can.
Now the biggest emphasis that I can stress out to you is that you don’t want to talk to just one lender, because you’ll have no idea what options are out there. Now each one is going to want run your credit report and it’s pretty common. Now that can drive your credit score down.
Now if you know enough, which a lot of first-time buyers don’t know is that what type of loan do you need. There are a lot of types of loan out there, and most of them are really dependent on what your credit score is, how long you plan on living on the home, how much you can afford to pay, and how long do you want that loan to be out there for. Also, how much of a down payment can you put against the loan as well. Now the conventional mortgage loan represents about 65% of the loans that are out in the market place today. A conventional loan is a 30-year fixed rate which means that the interest rate doesn’t change for the entire 30 years that you are borrowing the money for. They are generally going to require that you put down somewhere between 15%-20%. If you put 20% down, then you won’t have to pay for another private insurance and that’s another topic for another time. The conventional loan is typically done by private institutions, banks, a thrift institution, mortgage company that makes mortgage loans, and credit unions as well. And depending on the size of one of those institutions those loans may be guaranteed or backed by their Fanny Mae or Freddie Mac those are institutions that actually ensure those institutions. Then there are government backed loans, these loans are also made by the same lenders as your conventional loans but they are backed by the federal government. These loans are a little bit easier to qualify for because you can have a little bit less the credit score, if you have a little bit less of money that you can put down on the loan as far as the down payment. And the payment term is a lot more flexible than your conventional loan. These loans are aimed towards your first-time homebuyers, low-income buyers, but anyone can apply for these typically you hear these loans being an FHA or Federal Housing Authority type back loans. The other thing you want to be aware of is what’s the nature of the loan is that a fixed rate, is it a set rate type loan, or a variable rate. As I have said a couple of minutes ago fixed-rate loan means that the interest rate is going to remain the same throughout the life of the loan. Now you can get loans for 10 years, 15 years, 20 years, 30 years, 45 years, you can go there’s just a number of years that you can get these loans for but the interest rate stays the same throughout the life of the loan as long as you are paying against that loan. It doesn’t mean you can’t pay it off sooner if you actually have extra pot money in your pocket that you want to throw at the loan, you can do so it’ll save yourself that extra interest even though your interest is deductible off of your income taxes. Then you have an adjustable rate mortgage which is referred to as an ARM (Adjustable Rate Mortgage) now sometimes these loans will have a lower, smaller type of a teaser rate to get you into the loan and make it affordable then after some pre designated time period that interest rate starts to creep up either gradually or radically. As that interest rate rises so does the amount of your payment towards that loan so these loans are only beneficial to those folks who know that they’re not going to be in a home for a very long period of time maybe they feel that they’re going to get out of a home before that interest rate changes so sometimes these loans won’t start making their changes until 3-7 years but they’ll continue to escalate after that initial time period has gone by.
Now the next point is you want to contact several lenders as I’ve said earlier. Pick up the phone! Make some phone calls, reach out, and see what other types of lenders are out there. Now there are individuals that are loan brokers. Now these loan brokers can work either directly for you but you’ll pay them a fee, and or they work for a lender or a number of lenders and those lenders will pay them that fee. Some of these loan brokers will actually compile an application package, go through some initial review and then submit that application to a lender or a number of lenders. Unless that mortgage broker is working for you, you must have them under contract. That means that they’ll have a more interest on finding a better deal for you, better rate, better terms, better conditions, fee considerations, everything. If you don’t have them under contract them basically, they’re under contract with whatever lender that they’re taking your loan application to. Which means they’re not really shopping for your best interest, so you might want to flush that out as part of the process of when you’re going out and shopping for these mortgage brokers or you can apply directly to a mortgage lender, a bank, a credit union, institutions like that, you can go direct and deal with a loan officer that’s actually employed by the lender as a comparison to the loan broker.
Now another point that you want to be sensitive to is any kind of additional costs associated with the loan. Additional cost can be an application fee, a paper processing fee, it’s just a myriad of different fees that can be associated with the loan application. Some of them are upfront when you submit the application. Some of them might be as you close on the transaction and some of them might be after you’ve already secured the loan and you’re paying the loan off. Such as an early termination fee, so it’s best to serve you to smoke out all of those different potential fees that there might be associated with that particular lender when you’re sitting and considering them as your possible mortgage lender.
Something that you don’t pretty much hear anymore but was popular 10-15 years ago are points associated with the interest rate. So, a lender might offer you a pay a point of the loan amount and that can reduce your interest rate by a quarter percent or a half percent. Where this ends up being a benefit to you is if you are going to be staying within that home for any longer than 10 years. You might want to consider to pay off some of those points a little bit of an expensive upfront cost but over the life of the loan it ends up saving you a little bit more of money than just not paying any points and just paying the actual interest rate through the life of the loan. If you’re going to stay there through the life of the loan.
that loan estimate is going to break down all the criteria for that loan with that institution. It’s almost like a guarantee but not really a guarantee. It’s nice to get this document from a variety of lenders so in that way you can line them up one next to the other and try to determine for yourself which one of the lenders is going to be the best deal for you. Because ABC lender might be great for you but not great with the next person that actually applied with them. So, talk to them again, talk to several lenders and get the loan estimate from them it’ll break down all the criteria of the loan, the terms, the cost, the fees, and then that’s the actual document that you want to base your decision from. Not what you her them say as a teaser or what you see advertised on the internet or published in some sort of publication because you may not qualify for that deal that bright deal that’s gotten you in the door. The whole idea is to get you in the door and have their salesman to try and pitch you on a loan product with them. When you’ve got that loan estimate, that might give you an opportunity to actually do some negotiating with them. See where they might be able to waive some fees, lower an interest rate, do something to make the deal a little bit better and don’t be afraid to make that lender know that you’re talking to two, three, four other lenders as well as them. That will make them more aggressive to want to actually earn your business and to earn your business means to make it a better deal. Because what else can they do? It’s a loan, it’s money.
now for more of these informative videos hit the subscribe button down in the lower corner and we will be coming out with videos every week, with different information for buyers, sellers, and investors. And we’d love to be able to help you in any way that we can with any of the information that we provide on these videos, also my contact information is in the notes so just scroll down and you’ll see the notes I’d be happy to help or answer any questions that you may have. Thank you very much!