Buying a Home – What You Need to Know!

Purchasing a home, especially for the first time, will bring many questions to your mind.? And rightly so, as a home is the largest investment, and a mortgage the largest financial transaction the average person will undergo in their lifetime.

This article covers most of the basics about home-buying and will define terms and answer common questions about the home buying process.

To the home buyer, shopping around to get the best possible interest rate seems the most important task once a property has been found to purchase.? The interest rate is certainly an important factor to consider and research.? The difficulty lies in the large and conflicting quantity of misleading information out there.? TV commercials, articles in magazines, columns in the newspaper, pages on the Internet…these have served to bring the concern over interest rate to the forefront of most consumers’ minds.

The problem for the consumer with all the marketing and advertising is that it is not designed to inform you, but to make you call or contact a particular lender.? “Lowest rates!”? “Call now before rates go up!”? and similar ad campaigns stress rate so much.

Many times the offered rate is very low and is basically designed to get you in the lender’s door.? Once there, and having applied and done all the paperwork, you will usually find yourself approved for a mortgage at a higher rate than the one you initially responded to.? Often, by this time, deadlines for closing on your new home are approaching, and many people just go along with the loan they are approved for.? Most people sign a purchase agreement for their new home and have 30 to 45 days to come up with financing.? Many lenders are offering low interest rates but only for 10 or 15 days lock periods.? The rate is no longer valid by the time you are actually ready to close on the home.

So when shopping for a rate, ask the lender what the lock-in period is for that rate, and that it allows you sufficient time to complete the loan transaction.

Another often-seen method of enticing borrowers is to hide additional fees in fine print.? The interest rate is one thing, and is often in big, visible print in the ad.? In finer print is the APR – Annual Percentage Rate – which by law must contain the true annual interest rate including all fees, interest compounding, etc.

APR can be helpful in comparing apples to apples and oranges to oranges when shopping, but even here, different lenders calculate the APR in different ways, and state laws vary as to how they may do so.? Many large national lenders are deliberately legally based in states that permit loan practices that are often just shy of deceptive.

Interest rate aside for now, there is another question that a borrower needs to answer for themselves:? “How long will you need to borrow this money?”

The length of time you will have this loan has a big impact on what type of loan may be right for you, whether or not to pay points up front to lower the loan’s rate, etc.

Short-term borrowers may be selling the home in just a few years.? Military families, for instance.? Or perhaps your family is going to grow and you will be trading up?to a larger home in a few?years.? Or, if you children are growing up, you may?actually want to trade down to a smaller home down the road. ?Or you may be entering into an Adjustable-Rate Mortgage (ARM) that has an initial low interest rate for 3 or 5 years, but then will recast to a higher rate and your payments will go up, sometimes sharply.? You may be planning, therefore, to refinance the loan before the recast date.? The fact is, most people do not keep a home for the full term of the traditional 30-year fixed-rate mortgage loan, or if they do stay in the home, they refinance when interest rates fall, or to pull cash out of their equity for other purposes.

Long-term borrowers that plan to stay in their home for many years are looking at a different type of borrowing strategy altogether.

This question of length of the loan is important because, again, many lenders offer low rates on 30-year fixed-rate loans but the loans may have pre-payment penalties built in that prevent or discourage the borrower from refinancing for a set period of time, often as long as 5 years.? If you find interest rates dropping in several years it will be quite frustrating to be forced to continue making loan payment higher than you could if you refinanced, because you are “locked into” your loan!

It is very important to work with an experienced loan consultant that takes a financial planning approach to helping you select the best loan for your individual needs and goals.? They will ask you many questions to determine the appropriate mortgage for you now and in the future.? One size does not fit all!

By: James Hussher