The Top 5 Things You Must Know Before
Applying for a Mortgage
by Rob Sallay
Youve been thinking about buying your own home for
quite a long time, and now youre ready to take the
plunge. Youve been saving money for a down payment,
and you know the next step is preparing to apply for a
But where do you start?
Here are the top 5 things you need to know before approaching
a mortgage lender.
1. Understand Your Options
All mortgages are not created equal. There are several
different types, which vary based on interest rates and
payment terms. For example:
- With a fixed-rate mortgage, your monthly payments
remain the same during the entire length of the mortgage.
There will be no variations in monthly payments, regardless
of changes in interest rates and inflation.
- With an adjustable-rate mortgage, you will often
receive a lower initial interest rate, but your monthly
payment amount can rise and fall as interest rates
fluctuate (within certain caps or limits).
- With a balloon or reset mortgage, you once again
may be offered a low interest rate, but it will hold
for a limited time. After that, the balance of the
mortgage will be due, or you will need to refinance.
2. Become a Rate Watcher
The state of the economy influences interest rates, which
ebb and flow on a regular basis.
Your daily newspaper tracks these rates, so stay current
by watching whether rates are rising, falling or remaining
It behooves you to become as educated as possible about
how these rates will affect your mortgageand to
see if you want to postpone applying for one until rates
3. Get Pre-Approved
Consider getting pre-approved for a mortgage, says Frank
Nothaft, PhD, vice president and chief economist for Freddie
Mac, the stockholder-owned corporation established by
the United States Congress in 1970 to create a continuous
flow of funds to mortgage lenders in support of homeownership
and rental housing.
A benefit of being pre-approved for a mortgage loan
is that it gives the prospective homebuyer additional
bargaining leverage when competing with other prospective
buyers for a home, he says. A home seller
may be more likely to accept an offer from a pre-approved
borrowerbecause the seller knows the buyer can get
a loanthan from another bidder, who may be exactly
the same in financial qualifications and offer, except
that he lacks the pre-approval.
4. Consider Making a Higher Down Payment
Making a higher down payment on a home will reduce your
mortgage, but there are definite pros and cons, according
to Dr. Nothaft.
The pro of putting down more money is that you can
often obtain lower-cost financing, he says. High
down-payment loansthat is, low loan-to-value ratiorepresent
less default risk to a lender, and are safer. That may
translate into a lower interest rate or obviate the need
for mortgage loan insurance.
The con, he continues, is that it may
result in the borrower having to delay a home purchase,
because the borrower does not have enough liquid assets
to make a larger down payment. Low down-payment loans
are especially important for first-time home buyers, who
typically do not have the financial wherewithal to make
a large down payment.
5. Select Your Lender Carefully
As in any industry, there are bad apples who
ruin the reputations of respectable professionals. In
the mortgage business, these folks are known as predatory
lendersindividuals who take advantage of vulnerable
consumers. Those most prone to becoming victims include
the ill-informed, the elderly, women, minorities, low-income
buyers and consumers with bad credit.
To avoid becoming prey, select a lender with
solid credentials. You can secure a referral from your
bank or credit union, real estate agent, government housing
agency, or friends and relatives who have successfully
Never trust a mortgage offer that arrives via email, as
it likely originated from a spammer.
Mortgage Relief specializes in assisting Australian families
with mortgages by making their monthly repayments more
manageable and decreasing their overall debt and total
interest paid over the life of their mortgage. Mortgage
Relief is a mortgage refinance provider that it part of
Australias largest Debt Relief organization.
Visit Mortgage Relief on the web at http://www.mortgagerelief.com.au
or contact them directly on 1300 789 014.
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