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Things to understand before taking out a mortgage
Taking out a mortgage is a huge commitment. Not only does the application process require a lot of time and effort, it also requires an overall understanding, or else you could end up paying more than you would have if you were educated about the mortgage process.
There is a lot to know about applying for and taking out a mortgage. There are hundreds of different mortgage products to choose from and the options seem to be endless.
Understanding the mortgage “jargon” will help you to not get swindled by a broker looking for some quick cash.
The May 6, 2005 article on fastmortgageusa.net by Mike Ferguson, “Become an educated borrower with key questions,” lists the key issues you should understand before you even begin the journey of taking out a mortgage.
“Most consumers have only marginal knowledge about today's mortgage products, mortgage procedures and underwriting guidelines. True, some borrowers just want to sign loan documents and be done with it, but no loan officer should assume all borrowers fit that mold. With that said, all lenders should talk about the following key issues in their first or second meeting with their clients. These topics are independent of whether or not the loan involves a purchase, a refinance or just a small second mortgage to remodel the kitchen.”
Some of the things that you need to completely comprehend before taking out a mortgage are: Your credit score, the different loan options available to you, the various pricing options, whether or not you should “lock-in,” closing costs, the documentation and paperwork that is required, the appraisal requirements and the overall schedule of the process in general.
Your credit score is probably the most important aspect of the application process, and it can be the deciding factor in whether or not you get approved for the loan. Not having a thorough understanding of all aspects of your credit score will only hurt you in the long run.
“Today, good credit is often defined as having high credit scores. Many loans are submitted and approved by automated underwriting (AU). These AU programs are highly credit-score sensitive. Borrowers with low scores should know what caused them and what can be done to improve these scores over time.”
In terms of the loan products available, the options are endless. The most common mortgage out there is the fixed-rate 30-year mortgage. But this standard mortgage is definitely not right for everyone. The other most popular type of mortgage is the adjustable-rate mortgage, but there are still many other options out there.
“There are pros and cons to 20-year, 15-year and adjustable rate mortgages (ARMs). For some borrowers, intermediate ARMs, balloon mortgages or home equity lines of credit make the most sense. If the loan amount is over 80 percent loan-to-value (LTV) and private mortgage insurance (PMI) is initially required, it is probably advantageous to keep the first mortgage at 80 percent LTV and combine it with a simultaneous low-rate second mortgage to avoid paying PMI. The possibilities are endless. But the borrower should make the choices, not the lender.”
It is also advantageous to have a keen understanding of pricing options such as points. Points can be paid in advance in order to get a lower interest rate. You should also decide if you want to lock-in your interest rate, and if you decide to, how long you want to lock-in for.
Also, having all of the required documents in order before you start will help to expedite this process greatly.
“Mortgage decisions can be complex and an educated borrower will generally make the best decisions. That's why borrowers must ask plenty of questions and good loan officers should be ready with informative answers.”