Applying for a Mortgage

Before applying for a mortgage it is a good idea to ask for a preliminary consultation with a bank loan officer to determine a safe range of your buying power before you begin your house search. It will avoid unnecessary time and disappointment later.

Banks differ on conditions for lending money. You should call different banks in the area and inquire about their lending policies. Newspapers are a good source of information on lending establishments. You can also consult a mortgage broker. Just make sure the broker is a reputable one. There are three elements banks consider in granting a mortgage; interest rates, points, and down payment.

1. The interest rate is the percent of the total loan that you will have to pay in addition to the principal cost of the loan. Look for the lowest rate available. Keep in mind the prime rate; this is the rate at which the government lends money to banks. Look for interest rates close to the prime rate (they will always be a little higher). You also want to borrow when interest rates are lowest.
2. Mortgages usually fall in two types; fixed rate and adjustable rate (ARMs).Fixed rates in times of low interest usually cover a 15-20-30 year period. ARMs often have a low initial rate that will go up much higher over the years. Make sure to find out which mortgage alternatives have renegotiable terms.
3. Points are the percent of the total cost of the house that you will have to pay the bank up front. It can add up to a lot of money unless you have the money to pay immediately. Look for the bank that will ask for the lowest number of points. Sometimes the seller will pay the buyer's points in a difficult market. Ask the seller to pay.
4. The down payment is the percent of the total cost of the house that you will have to pay the seller initially. The bank requires this as an assurance that you have the money to pay back your mortgage loan. It lessens the amount the bank will have to lend you. Down payments can be as little as 5 percent to as much as 30 percent. Determine how much you can afford to pay up-front.
5. To apply for a loan you will have to fill out an application to determine whether you qualify for a loan. You will have to prove your salary (show copies of recent tax returns), your assets, (cars and such) and your bank and credit accounts.
6. If the bank approves your loan it will let you know rather quickly (less than a week) because the seller is waiting to hear. This is where good credit helps you. It will give you 30 to 60 days to buy the house and reach a settlement. If interest rates come down enough while you are paying your mortgage you should consider refinancing. Make sure there are no penalties for paying off your mortgage early.
7. In refinancing a mortgage, you sell the property back to yourself and get a new mortgage at a lower interest rate that pays off the original mortgage. Refinancing can save you thousands of dollars in house payments.
8. It is recommended that you refinance only if the rate has fallen more than 3 percent. That's because when you refinance you have to pay settlement costs, plus other new fees that may run into thousands of dollars .It may not be worth the hassle unless you can see some real savings.
9. If you decide to refinance go to the bank that gave you the mortgage. While the bank stands to lose money on the deal, it won't try to stop you because it knows you can go to another bank.
10. Some people refinance to have lower monthly payments, some to pay off the mortgage faster. Consider what works best for you