Practical Tips Preparing You for Mortgage Negotiation and Approval

Do not let yourself get excessively caught up in that wonderful visualization of the perfect home and neighborhood that you have always dreamed of raising your kids in. Stay realistic by being a perceptive shopper and get in touch with mom & dad, phone a friend, or review the mortgage tips below to expand your comprehension in what it takes to finance a home in today’s market.

  • Have you found a home you are interested in buying? Consider getting a pre-approval letter from your lender to present to the homeowner. This will let them know how serious you are in their home, and make them interested in you as a buyer. To get a pre-approval letter, you will send your financial information to a lender for review and they will submit an offer. This offer will detail the type of mortgage you are approved for and is valid for a specific period of time (typically one to three months), after which the offer will expire.
  • Have you received a number of approvals from various lenders, but are not sure who you can trust? Ensuring that you choose a reputable lender is essential. Do research to see if there are any complaints filed against the institution, and read online reviews from past customers. Additionally, you can see if the lender has approval with HUD, the BBB, or your local government’s department of banking and financial institutions.
  • In general, the origination fee (the fee paid to the lender for them to go through the process of servicing your loan) should not exceed 1% of your mortgage amount. If your lender is asking for a higher rate, you should negotiate a lower one, or begin looking to other lenders who will offer a more reasonable rate.
  • Have you heard that it is a good idea to close some of your credit accounts before applying for a mortgage? This action may not only be questioned by your lender, and make you appear to be less creditworthy, but it may also lower your credit score. On the other hand, it is a good idea to pay off your credit card debts and other outstanding balances prior to applying for a home loan.
  • Are you still in the preliminary stages of getting a mortgage? If you have been pre-approved or are still in negotiations, and the current mortgage rate is low, ask your lender to lock it in for you. By locking in the rate, you will be able to receive this rate even if it goes up in the coming days. Rate locks are typically valid for 30-60 days.
  • Did you lock in a mortgage rate, but they have since dropped to even lower levels? Do not be afraid to negotiate with your lender to receive the lower rate. They need your business and should be willing to work with you to make you a happy customer.
  • When shopping around for a mortgage, it is a good idea to monitor the current market rates. These rates are located on government-sponsored mortgage banker websites, in the newspaper, and on numerous online financial resources. These rates change weekly so be sure to keep an eye on them in order to get the best available rate.
  • When applying for a mortgage, be careful that you do not borrow more than you can actually afford. While you may qualify for a larger amount of money to buy a home with, this does not mean that you can afford it. Try an online mortgage calculator to help you gauge what would be best for your finances.
  • Already have a mortgage but interested in making it more affordable? The first step is to review your loan documents. This will tell you what your current rate is, when it is up for renewal, and other pertinent information. This will help you determine if it may be time to refinance or modify your current loan.
  • Are you considering an adjustable rate mortgage? It is important to understand that if interest rates increase, your monthly payment will increase also. This means that your monthly payment may be for a different amount each month. Before deciding on this type of mortgage, consider how much the current payment takes up in your monthly income. Do you have some wiggle room in case the rate increases, or are you maxed out with the rate you have right now? If you can’t handle a higher payment, consider a fixed rate mortgage.
  • Are you interested in a convertible rate mortgage? This type of mortgage begins with an adjustable rate and is converted to a fixed rate after a predetermined period of time. Before coming to an agreement with your lender, review all of the detail and fine print to make sure you understand the terms and the lender’s process for determining your fixed rate. This can prevent you from being stuck with an unaffordable rate in the future. Having the documents reviewed by a lawyer or financial advisor may also be beneficial if you do not fully understand what is stated.
  • Is it time to renew the term on your mortgage? Ask your lender if it is possible to secure your same rate with a reduced amortization period. For example, if you are renewing your 30-year mortgage after 5 years, find out if you can reduce the term to 22-23 years rather than 25. This will not only help you to pay off the loan quicker, but will also reduce the interest you will incur over time.

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