Guide to Mortgages, Home Equity, and Refinancing

How do I find the right mortgage lender?

Finding the right mortgage lender often depends on your own personal situation. You have the opportunity to finance your home by either working with a bank or a mortgage broker. Either one can arrange the loan for you, it is up to you to decide what will be the best for you. Since all lenders will offer different interest rates for a mortgage loan, you should start by doing some comparison shopping. Look at the different loan products being offered as well as other terms. It is important to also ask about closing costs that are charged, prepayment penalties, and how the loan is serviced. Since it is common practice for mortgage loans to be sold to other institutions you should also ask your lender what percent of loans they sell. This may be important especially since most people don’t realize that eventually they may end up working with someone else besides the original lender.

What disadvantages are there to using my home for debt consolidation?

Using your home for debt consolidation may not always be the best option for you. It may allow you to combine many of your monthly bills into one payment but won’t help if you can’t control your spending. Reducing your debts through bill consolidation is great unless you turn around and run up your credit cards again. When this happens you may find yourself in the position once again of not being able to meet your monthly payments. Having no other options if you fall behind on the payments for a first or second mortgage you run the risk of losing your home. Another disadvantage can occur if you take out a second mortgage at or above the value of your home. This could trap you later if you need to sell your home since you may owe more than the price you can get for your home.

Why worry about home much home I can afford?

Buying a home can be overwhelming, especially for a first-time home buyer. Plan a budget that you can live with to know what you can actually afford before you apply for a mortgage. Be reasonable when you are doing this and think long term. Many people get into trouble when they buy a house beyond their means by using special financing programs like interest-only loans. When it later comes time to start paying the principal as well as the interest they have trouble fitting the payment into their budget. Don’t let this happen to you. Instead, buy the home that you know you can afford throughout the life of the loan. There is nothing worse than finding yourself in the position where you can’t make your monthly mortgage payments and have to face foreclosure.

Should I worry about home loan scams?

There are lots of predators out there who are looking to take advantage of unsuspecting individuals. They will even offer you deals that could end up costing you your home. If a deal seems to good to be true it probably is. Some con artists prey on people who own their homes free and clear. This is often the elderly. Predators convince unsuspecting victims to sign a quit claim deed, which essentially gives the home to the scammer. There are other fraudulent activities that may be used on unwitting homeowners. Be cautious when it comes to your home. Don’t take out a mortgage with a lender unless you know what you are getting into.

What happens with an appraisal?

Anytime you take out a mortgage on your home, the lender will seek a credible estimate on the value. They can do this be ordering an appraisal or may be willing to get a best guess by using the market value. An appraisal requires someone to come to your home and review its features. This is then compared to other recent home sales in your area. With a market value typically a computer program provides an estimate of the home value as compared to recent home sales in your area.

The disadvantage to both of these methods is that the estimate could be higher or lower than what you can actually get for it. If the estimate is too high, you could end up financing more on the home that its actual value. If you were to sell the home, you would have to come up with funds to pay the difference between the sale price and what you owe along with any other closing costs. When the estimate is too low, you are not able to take advantage of all available equity.

What are closing costs?

When buying or refinancing a home, make sure you fully understand all of the closing costs involved in the process. Your lender is required to disclose this to you, but it is to your advantage to gain a full understanding of this early in the process. You don’t want to be in a position where you have made an offer on a house and suddenly discover that you need to come up with money you don’t have for an appraisal. There are lenders who will allow you to include some or all of the closing costs in the overall home loan. Typically your closing costs will include things like: appraisal fee, home inspection fee, application fee, and other related costs.