Purchasing a home mortgage can be a daunting undertaking that could require the skills of a broker or the advice of a mortgage lender. This process could become intricate. There are a lot of products or programs. You could save cash by knowing how the broker or lender gets paid.
The most important purchase - for most consumers - addresses the processes involved with buying a house. Whatever your goals, the home buying process must be transparent and thoroughly researched. Consumers need to be aware of fundamental concepts, such as the type of loan and the duration of the financial product. Real estate agents and brokers can help you with this process.
While a great mortgage lender is essential, the consumer should conduct independent research to make fully informed decisions. The main goal of the lender is to supply borrowers with solutions to complex and intimidating topics. An effective mortgage lender will provide you with the necessary information.
“I would say the biggest obstacle facing consumers when it comes to getting a mortgage would be the down payment and interest rates,” said Joshua Stancle, the Director of Housing with Kaimore. “In order for a first time buyer to purchase a home they will need sufficient funds not only for down payments and closing costs, but also have enough money left after closing to make their payments.”
How do consumers find the best lender? They can use the services of a mortgage broker who functions as the middleman between buyers and lenders. Brokers work with a network of people to determine the best lender for the specific borrower. Basically, a mortgage broker originates and closes loans between the borrower and the lender. The typical origination fee – 1% of the balance – can come to thousands of dollars. This fee can be negotiated with either the broker or the lender.
What are the benefits of working with a broker? They can waive origination fees, application fees, appraisal fees and more. They have diverse knowledge regarding the most effective lenders and financial instruments. A broker can streamline the lending process by researching rates and fees for you.
Brokers serve as your negotiator with the lender. If you’re a good negotiator, you could handle this process yourself. Brokers earn 1% to 2% of the cost of the mortgage. What does this mean in real dollars? If you use a broker to manage your $200,000 loan, you can expect to pay between $2,000 and $4,000 in fees.
Communications are important and this means that the lender should respond to questions in a timely manner. The lender will also provide you with pivotal information that will keep money in your pocket. One example is closing a loan on time. You could lose a price lock if you miss the closing date.
Basically, the lender should make use of emails, texts, or phone calls to your home, office, or cell phone. An effective lender will promptly reach out to consumers during the mortgage process. Some lenders provide more attention to recruiting homebuyers than to servicing their existing client base. In addition, some lenders have gaps in their knowledge of the housing market.
Essentially, lenders will provide you with a monthly mortgage payment that leaves you comfortable, and they will find ways to earn their commission by coming up with an affordable loan amount, the proper duration of the loan, and personal budgeting information. The borrower should scrutinize every detail.
“The remaining funds left after their down payment and closing cost are called reserves,” said Joshua. “Typically a lender will require a buyer to have anywhere from 3 - 6 months reserves of futures payments after closing in their account to cover those future mortgage payments.” While reserves are important, the most important process involves the purchasing of the most appropriate loan. Should you choose a 30-year fixed rate loan or a 15-year fixed rate mortgage? What is a good rate?
There are conventional loans, FHA loans, VA loans, fixed-rate loans, adjustable-rate mortgages, and jumbo loans. There are additional types of loans. For example, there are renovation loans where the costs of updating or upgrading a home are included in the total cost of the mortgage. Effective lenders are aware of all of the options available to borrowers.
All loans come with a duration, such as a 30-year mortgage, along with an interest rate that can be fixed or adjustable. There are balloon payments as well.
Your specific financial product will be determined through independent research and with the guidance of your lender. The best lenders will give you comprehensive options along with complete guidance.
“There are federally backed programs such as FHA which allows buyers to put as little down as 3.5% down on a home,” said Joshua. “In addition, there are down payment assistance programs (DPA) which allow prospective buyers the ability to utilize seller concessions to reduce their cost in buying.” The DPA product can benefit a borrower because this strategy negates the down payment, the closing costs, or both.
One major factor impacting the affordability of a mortgage is the interest rate. Mortgage rates have been increasing steadily during the last several months and there is no slow down in sight. One way lenders have been assisting borrowers is by making use of a 2 – 1 buydown, said Joshua.
This program allows lenders to buy a house with a temporary interest rate that is lower than the actual interest rate. For example, if a buyer purchases a loan with a 7.5% interest rate, the seller could make concessions that drop the interest rate to 6.5% for a year or so.
While this is only a temporary fix, it could work well with your personal financial plan. Borrowers must conduct in-depth research and, with the guidance of a broker or a lender, they will purchase a housing product that best meets their personal and financial objectives.