Choosing the Right Mortgage

Your lender will discuss several types of mortgages, so that you can select the one that best fits your financial and personal needs. In the meantime, you can research loan types over the Internet to familiarize yourself with the many options. Most national mortgage companies’ web sites have descriptions of their mortgage programs and calculators to help you determine estimated payments. Lenders are competing for your business, so it is in your interest to “shop” for the best mortgage rates. Lenders typically offer their best rates to home buyers who have very good credit, high downpayment and low amounts of debt.
Below are brief descriptions of some types of available loan products. Ask your lender for information on other programs not covered here.

Fixed-rate mortgage: These loans generally are paid off in either 30 or 15 years. The interest rate remains fixed for the entire loan term, and you have the security of the same interest rate throughout the life of the mortgage.

Adjustable-rate mortgage (ARMs): These loans initially offer lower interest rates, and lower payments, than fixed-rate mortgages. However, the interest rate adjusts after a specified period, and then may adjust each year thereafter. Your payments will fluctuate during the loan term depending on the index used to calculate rate adjustments.

Option Loans: Some lenders offer loans that give the homeowner flexibility in determining the amount of their monthly payment. These loans give the homeowner the option each month of making a minimum payment, which could be interest-only, principal, and interest, or other amount. However, if homeowners choose only the minimum payment each month, they will not build equity in their home as quickly as with a fixed-rate loan.

Your lender is required to make several disclosures to you about the loan you have selected. These include:
· Truth in Lending Act (TILA): Enacted by Congress as part of the Consumer Protection Act, the TILA requires written disclosure of key terms and conditions of your loan. These include disclosure of all costs, including the total amount financed, the annual percentage rate, and the total amount of payments.
· Homeownership and Equity Protection Act (HOEPA): Although this disclosure is primarily used when refinancing your home or taking out a home equity loan, the HOEPA also requires disclosures for loans with high rates or high fees. These include notice that payments may increase with an adjustable-rate loan, along with the maximum monthly payment.
· Real Estate Settlement Procedures Act (RESPA): This act requires mortgage brokers to disclose any fees paid by the borrower, as well as any indirect fees received from a lender.
· Servicing disclosure: Your lender is required to notify you if they believe another company may eventually service your loan after it closes.
· Affiliated business disclosure: Some lenders are affiliated with other companies, such as a home builder or real estate agency. If you are referred to the affiliated company, the lender must state that you are not required to use their services and may select another lender.

No matter which loan you choose, ask your lender about whether you will need to pay mortgage insurance. This insurance protects lenders in the event that a borrower defaults on their loan, and is generally charged as a percentage of the loan, payable each month. Buyers who have a down payment of at least 20 percent are not required to pay mortgage insurance. Some lenders offer loans structured to avoid these insurance payments without making a 20 percent down payment. Always ask your lender whether a loan that includes mortgage insurance can provide you with a lower monthly payment than a loan that uses a first and second mortgage combination. Don’t assume that having mortgage insurance will automatically mean higher monthly payments.

The following are additional questions to ask your lender:
i) How long can I “lock in” my loan at the current interest rate?
ii) Do I pay a pre-payment penalty if I decide to pay off my loan before the end of the term?
iii) Am I paying “points” to get a low interest rate with my mortgage? (A “point” is equal to 1% of your loan amount).
iv) What are the fees you will charge me in conjunction with my loan?
v) Can the buyer assume my loan if I sell my home?

When selecting your loan, remember that the best loan offers you more than just the lowest interest rate. Be sure to calculate the cost of the entire package, including loan fees and points.

Choosing Your New Home

When you meet with your real estate agent to begin your home search, it is helpful to bring a list of the features that are most important to you. These might include price range, type of neighborhood, detached home or condominium, number of bedrooms and bathrooms, yard, carport or garage, location, etc. Your agent will enter your preferences into a computer program that searches the hundreds of available homes to find the ones that meet your needs. Some agents’ web sites allow you to conduct these searches on your own. However, you will save time if you also take advantage of your agent’s market knowledge to select the right home at the right price.
Once you have your list of prospective homes, it’s time to start viewing them in person. It’s best to view a targeted number of homes in a single day. Make notes on the printed information sheets for each home so that you can remember features that appealed to you, or questions you might have.
Some people find the perfect home in only a few days, while others search for several months. Take your time and enjoy the process. When you find the right home, you’re ready to take the next step: the purchase offer.

Negotiating the Purchase

The offer to purchase your new home is contained in a legal contract that specifies terms and conditions for your purchase. These include:
i) Amount of your deposit, or “earnest money”
ii) Financing required by the buyer to complete the contract
iii) Personal property to be conveyed to the buyer with the property
iv) Contingencies of the sale, such as a home inspection, and timeframe for removal of contingencies
v) Preferred closing and occupancy date
vi) Required inspections and reports, and who will pay for them
vii) Determination of who will pay the costs of escrow
viii) Selection of the title and escrow companies
ix) Expiration of the offer

Your agent will deliver the offer to the seller’s real estate agent, or may present it in person. The seller will either sign the offer as written, counter your offer with changes the seller feels are necessary, or reject the offer without countering. In most cases, you can expect to receive a counter offer, which is a normal part of the negotiating process. Once all parties are satisfied with the terms of the purchase offer, and have signed the contract, it is binding. However, both parties generally have 14 to 17 days during the contingency period when they can be released from the contract without penalty. The contingency period allows time for all of the inspections and reports to be completed. If either party is not satisfied with the results, in most cases they can cancel the contract without penalty.