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Home Financing- Shopping for a Mortgage Loan
If you have found the perfect home, you will now need to examine
financing to help you pay for this home. Unless you are independently
wealthy or have relatives who
A mortgage is a loan that a lender provides to help you purchase a home. Almost all of the lenders, that you approach, will loan money for a home, because they use the home as collateral. Collateral secures the loan, to ensure that the lender, will get his/her money back in the event of loan default. For the lender, the worst thing that can happen, should you fail to make payments on the home, is the lender will repossess the home and offer it for resale. For the home buyer, repossession will negatively affect your credit rating, but you also may be responsible for any shortfall in proceeds in the resale of the home. Let's assume you borrow $100,000 for a new home and make payments for several years and the balance of the loan remains at $90,000. You fail to make the payments and the mortgage company repossesses the home. The home is resold for $60,000 to a lucky investor. You may be responsible for the $30,000 shortfall between the purchase price and the loan balance. Loan default always should be your last desperate option. There are many, many relatively wealthy investors who have capitalized on others hardship to help them accumulate their wealth. While the lender makes every effort to recoup the loan balance on every resale, homes are purchased every day for below market value and resold at a substantial profit. In buying a home, make sure you buy as much home as you can afford, but be cautious in purchasing more house than you can afford. A beautiful home that places a strain on your recreation and lifestyle, makes for an unhappy home owner. To help to determine how much home you can afford we have included a mortgage qualification form to help you determine how much home you can afford. Shopping for a Mortgage LoanEvery bit of the effort that you put in to find a mortgage is time (and money) well-spent. A competitive mortgage rate or a good loan can save you money in the near-term and over the 15-30 year life of the loan. Remember the money you save can be invested elsewhere, which can pay dividends. Savings on the front end of the loan may help you decorate, fix up the home, or help in moving costs. Closing on the loan always costs more than you expect. While you will be given a list of closing costs prior to the day of closing, most people still run short because most people want to put as much down on the loan in order to lower their monthly payment. Depending on the amount of the loan and the interest rate, for every dollar ($1) you put down, you will save two to three ($2-$3) over the course of a 30-year loan. When you begin to shop for a mortgage- shop for a loan-not a lender. Remember, mortgage companies typically all work the same and the processes of securing a loan are pretty much the same with all lenders. A good mortgage lender is a good salesperson. Their job is to sell you on their personality, their empathetic attitude, and the bells and whistles of their lending institution. The more masterful they are in their sales presentation, the more money they and their lending institution earn. The more money their institution earns, the more money you pay! Chances are, your loan will be sold to another lending institution once the deal is consummated, anyway. Selling mortgage loans to other lending institutions is profitable business. My own mortgage has been sold 4 times in 13 years. It seems that the better your credit rating, the more times your loan will be resold. The bottom line is, if you base your loan decision on the lending officer, you are bound to be disappointed once your loan has closed. You probably will have no further relationship with the loan officer. The old days when you borrowed from a local lender and maintained a relationship with this lender for 30 years is gone forever and the "A Wonderful Life" scenario, where your mortgage lender, James Stewart, fights to help you keep your loan is now only a memory. In shopping for a mortgage your key objectives should be interest rate, points, loan processing costs, and if you plan to apply for an adjustable rate loan- the features of the interest rate adjustment. Pay no attention to the loan officer or how close the lender is to your new home. Your Florida neighborhood Home Loan could end up in Washington State in less than a year. Banking has become an impersonal, profitable big business. Banking has pretty much become like buying a new car. I recently purchased my wife a new car and the salesperson proudly spoke of how great their service department was and how they give priority to vehicles purchased through their dealership. A week later, I dropped my vehicle (purchased from another dealership) and my wife's new vehicle (purchased from that dealer) at the service center at the same time. My vehicle (bought from another dealer) was ready in 90 minutes. My wife's vehicle (bought from that dealership) was not ready until closing time on the following day and her service was to simply tighten a mirror that was vibrating. The bottom line was my vehicle repair was more profitable for them to service than my wife's. To determine the type of mortgage that is best suited for your own personal needs, review our section on the types of mortgages.
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