The fixed rate/variable rate decision is one of the first decisions you'll make in shopping for a loan. If you believe that interest rates are going to fall in the next few years, or you plan to live in your home only for a few years, then an ARM might be for you. If you're not willing to gamble on interest rates or think you might stay put, pick a fixed-rate loan. Just don�t forget the bottom line: the monthly payment. If you choose an ARM figure out just how high it could go.
In some cases, particularly if you need help getting financing or qualifying for a large enough loan, the seller might be willing to assist you. Although it�s not usually advertised, this unique type of financing can be a great deal for both buyer and seller. It�s definitely worth exploring with your Realtor acting as facilitator.
Now that you've decided on the type of loan you want, you can start shopping around.
The home loan industry is booming. There are more places to borrow than ever before, including mortgage companies, banks, savings and loans, and credit unions. Your first priority is to shop around, a lot! Interest rates and points vary substantially between lenders. It's going to take time�so be prepared. You need to look for a reputable lender who suits your needs.
As we�ve seen, interest rates vary a lot according to the lender, prevailing interest rates, and the type of loan-- either fixed or variable rate loan. You�ll see how much the interest rate affects your monthly payments on a mortgage calculator. For example, an increase from 7 percent to 8 percent on a $150,000 fixed rate loan, with 10 percent down, raises the monthly payment from $900 a month to $990 a month.
This is another selling point to compare between lenders. On fixed rate and some variable rate loans, locking-in your interest rate is a way of insulating yourself from rate hikes while your lender processes your loan application. Locks are available for varying time spans, from 10 days to 120 days. The average length is 30 days. Some lenders offer a "float-down" option that lets the rate drop if it goes below the lock-in rate. Beware of fees, however, that might make this deal less than attractive. Whatever you do, get it in writing.
Lenders charge borrowers "Points," otherwise known as discount points and loan origination fees. This is the big-ticket item on your list of loan costs--one point is equal to one percent of the total loan amount, or $1,500 on a $150,000 loan, for example. Discount points are the largest fees most lenders charge. Some also apply a one-percent or one-half percent loan origination fee. Be sure to add both before you calculate your total points.
Private mortgage insurance applies to you if you're buying a home with less than 20 percent down. Ironically, it doesn't insure you for anything--it simply protects the lender in case you default. It adds about $43 per month for every $100,000 borrowed, or $516 per year.
This includes survey, title search and title insurance, to make sure the home is free of liens and encumbrances. Title insurance protects the lender from mistakes in the title search.
These include document handling, preparation and other "fees" associated with processing the loan. Keep an eye on these fees and stay clear of lenders that pad the loan costs with excessive fees.
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