Mortgages Loans in a Nutshell - 10 Tips for Home Buyers

By BR Cornett

Each year, new financing options become available for home buyers in search of a mortgage. As a result, there are more ways to qualify for (and obtain) a mortgage loan than ever before.

This is good news for home buyers, but it also means you need to do more homework than ever before. This article will get you started on the right path.

10 Mortgage Tips for Home Buyers

1. Study the mortgage types.

Each type of mortgage loan comes with its own set of pros and cons. Some loans are ideal for certain types of buyers but disadvantageous for other buyers. To decide which type of loan is right for you, you'll need to know the pluses and minuses of each type. Start with the basic types of mortgage loans – fixed rate, adjustable rate, balloon, etc.

2. Consider your staying time.

How long you plan to stay in a home will often determine which type of home loan is best for you. For instance, an adjustable rate mortgage (ARM) can lower your interest rate up front as compared to a fixed rate mortgage. But if you stay in the home beyond the ARM loan's introductory period, you'll face the uncertainty of interest rate adjustments.

3. Lean about new mortgage packages.

In the beginning of this article, we talked about new financing options that have emerged in recent years. Some of these loan packages make homeownership possible for buyers who were not previously qualified. But as always, you should apply tip #1 -- study the pros and cons of each financing option.

4. Shop for the best rate.

Mortgage lenders will offer different interest rates based on your credit history and credit score. When your credit is good, lenders are more comfortable lending to you, so you'll likely qualify for a better rate. When your credit is bad, the opposite can be true. Each lender defines their comfort level differently, so interest rates may vary from lender to lender.

5. Read up on RESPA.

The Real Estate Settlement Procedures Act protects you, the consumer, by imposing certain requirements on mortgage lenders. To understand what rights you have under RESPA, you should at least read the highlights of this act. You'll find a good overview on HUD's website, www.hud.gov.

6. Consider paying points.

A point is one percent of the loan amount. On a mortgage loan for $100,000, 1 point would equal $1,000. Some home buyers pay for points at closing to lower their interest rate over the life of the loan. To find out if paying points is a good idea for you, you'll have to do some basic math. For a good tutorial on mortgage point calculations, I recommend you visit www.mtgprofessor.com/points1.htm

7. Don't go it alone.

We all have friends or family members who own homes. These are good sources of information. Somebody who has been through the process and seen mortgage loans from "all sides" can often give great information. You should also enlist the support of your real estate agent. A real estate agent is not a mortgage advisor (not usually, at least), but most are well-informed about the mortgage process from having frequent exposure to it.

8. Factor in PMI.

PMI stands for private mortgage insurance. If your down payment on a mortgage loan is less than 20% of the total loan amount, your lender will most likely require that you pay PMI. Find out your lender's policies early on so you can play accordingly.

9. Visit the Fool.

Don't let their name "fool" you. The Motley Fool (www.fool.com) offers some of the best mortgage and credit information of any website online. From their home page, visit the Personal Finance section. Or just enter a phrase into their search box.

10. Watch out for unethical lenders.

Like any other industry, the mortgage industry has its share of bad apples. Most mortgage companies are honest, hardworking folks. But, unfortunately, there will always be an unethical minority. These companies prey upon homebuyers with bait-and-switch tactics, hidden fees and the like. You can counter this by being well-informed, trusting your instincts, and seeking professional advice when something seems too good to be true.

* You may republish this article online if you retain the active hyperlinks below. Copyright 2006, Brandon Cornett.

About the Author

Brandon Cornett writes on behalf of the Bay Club at Falcon Point Ranch, a master-planned community in Seadrift, Texas. Learn more about this Seadrift, Texas real estate by visiting http://www.bayclubliving.com

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