Tips & Tools : mortgage

New Debt Survey Shows Mortgage Confusion

RE.com Tips & Tools — Wed, 01 Aug 2007 20:22:00 GMT

by Brenda Spiering – RealEstate.com

Cruising home listings in search of a great new home? If so, chances are you’re also shopping around for the perfect mortgage. And, according to the results of the newly released 2007 LendingTree National Smart Borrower Survey, there’s a good chance you may be confused by all of the mortgage options available -- particularly if you’re young and single. While nearly a quarter of the young singles polled said they are likely to consider taking out an adjustable rate mortgage when they purchase a home, 33 percent said they don’t understand how one works.

This finding was just one of several seemingly contradictory results that came out of the poll that surveyed 1,499 consumers nationwide about such things as their loans, credit card debt, credit scores, savings and financial plans. For example, while 48 percent of those polled said they were uncomfortable with the amount of household debt they carry and 50 percent of respondents said they were concerned or extremely concerned about the amount of credit card debt they have, 54 percent said they have no financial plan.

“There’s no question that the results indicate the need for consumers to become better educated about loan options and how to manage debt,” says Bridget Smith, editor-in-chief of the LendingTree Smart Borrower Center. She said the responses of those surveyed show that many consumers aren’t making wise choices when it comes to managing their debt, despite the fact that 74 percent said they envision themselves eventually becoming completely debt free (outside of their mortgage).

“When many people think about what they need to do to get control of their finances, they only consider their budget. But,” says Smith, “they also need to make sure they have the information they need to make smart borrowing decisions. Loans today can be very complex and there’s a lot of choice out there. It’s more important than ever to become educated about the differences between various products so you can choose the one that’s best suited to your particular needs.”

So where should you turn to get smart borrowing advice? A great place to start is the RealEstate.com Tips & Tools section. Along with numerous articles on buying and selling a home, you’ll find information about home financing, pre-qualifying for a loan, choosing the right mortgage and calculating your down payment.

Top 10 Home Buying Mistakes

RE.com Tips & Tools — Wed, 11 Jul 2007 18:37:00 GMT

Use our list of common house-buying mistakes to avoid costly regrets.

1. Doing it alone. Buying a house is a complex transaction. Even if you don’t use an agent, you’ll need a complete, dependable team: lender, lawyer, inspector, insurer, as well as referrals and advice from friends and family. Enlist the help of these individuals early in the buying process.

2. Buying at first sight. You may be in love with the place, but does it fit your family’s needs and budget? Make a list of your needs and wants and make sure the house fits your requirements. Check out the neighborhood and the community before you buy by visiting at different times of the day and week to learn about noise and traffic patterns. Even if you don’t have kids, check out the local schools to make sure your resale value will be good.

3. Not getting pre-qualified and pre-approved. Being pre-qualified gives you a general idea of how much you can afford to borrow. Being pre-approved means a lender has verified your information and credit rating and agreed to provide you with a specific amount of money. You are in a better position to go house hunting knowing exactly how much you can afford and that you have financing.

4. Overbuying. You may qualify to borrow more, but can you afford to? Analyze your monthly costs: debt, food, transportation, entertainment, and savings. As a general rule, your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. Be sure to budget enough to cover closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance. Allow for increases in ongoing expenses such as utilities and taxes.

5. Misplacing your trust. No matter how much you like the agent, sellers, inspector, or the guy down the block who vouches for them, remember this is a business transaction. Your decision is binding. Do your own research and know your support team’s roles and responsibilities.

6. Relying on oral agreements. Get it right and get it in writing. Written agreements almost always trump oral ones when it comes to contracts. If the offer says the lawnmower is negotiable, but the agent says it’s included, get it in writing.

7. Skipping the fine print. You need to understand what you’re signing before you pick up a pen. Ask for documents in advance, make time to read them and ask questions. Get copies of your mortgage papers a few days ahead of closing.

8. Forgetting or betting on resale. Avoid buying a home that costs 50 percent more than neighboring homes and think before buying the most expensive home on the block. Your neighbors’ lower home values will weaken yours. Remember, markets change. If you buy intending to flip your investment and the market falls and you have to sell, your selling price may not be enough to even cover your mortgage.

9. Making an unconditional offer. Protect yourself with at least two of these contingencies in your offer:

Mortgage financing -- You’re pre-approved, but is the house? Before a bank will lend you money, it will want a formal appraisal of the property to confirm that there is sufficient equity in it to warrant the loan. If the house appraises lower than the sales price, the loan may be declined.
Inspection -- never buy an existing or new home without a thorough home inspection. Walk through the home with the inspector to learn more about the house and any concerns he or she may have.
Insurance -- confirm you can get adequate coverage. In some areas, it’s difficult to get hazard insurance.

10. Having buyer’s remorse. No place is perfect. There will always be surprises. Don’t let a few initial blips spoil the whole ride. And don’t miss a great house waiting for the perfect one!

End Mortgage Confusion: Top 10 Things to Ask Your Lender

RE.com Tips & Tools — Thu, 19 Apr 2007 18:47:00 GMT

Choosing a mortgage can be confusing. Find out the most important questions to ask before signing on the dotted line.

Chances are your mortgage will be the biggest loan you will ever have. Make sure it’s also the best one for your needs by asking your lender the following 10 essential questions.

1. What types of mortgages do you offer?
Consider both your current and future financial requirements in order to help you choose the best mortgage for your needs. There are a variety of different loan types, but the two most common are fixed-rate and adjustable-rate mortgages (ARMs).

In a fixed-rate mortgage, the interest rate and payment amounts remain constant over the loan’s life span. Therefore, this may be a better option if you’re planning to stay in your home for a while, are buying when interest rates are low or are concerned about the possibility of a future rate increase.

In the case of an ARM, the interest rate changes periodically according to a formula based on a particular market index. If interest rates are high at the time you’re applying for a loan, or you plan to move before the first adjustment period, this may be a better option. Most ARMs adjust their rate after a specified period, usually between three months and five years.

Hybrid ARMs combine the features of both fixed-rate and adjustable-rate loans. These loans use a fraction to indicate the adjustment term; a 3/1 hybrid ARM means that the rate will stay stable for three years and readjust every year after that.

2. What is the interest and annual percentage rate (APR)?
Once you’ve selected a loan type, the next important consideration is the interest rate. Your interest rate is used to calculate your monthly payments and how much you’ll pay over the loan’s term. Most ARMs are protected by caps that limit how much the interest rate can go up the first time, each successive time, or overall.

The annual percentage rate (APR) factors in other fees charged by the lender to better reflect the true cost of borrowing. However, it’s impossible to accurately compute the APR of an adjustable-rate loan. It’s therefore important to understand the adjustment frequency, the maximum annual adjustment and its interest-rate cap.

3. What are the discount points and origination fees?
Your lender may let you purchase discount points to secure a lower interest rate. One point is equivalent to 1 percent of the principal (e.g. three points on a $100,000 mortgage would cost $3,000). The longer you plan to stay in the home, the more it’s worth it to pay for discount points.

Origination points are administrative charges that cover the cost of the processing of your application. They don’t affect the interest rate.

4. What are the closing costs?
Be aware of the extra fees that will be included in your loan. They may include charges for appraisals and credit reports, and make sure you understand what each one is for. Ask for a “good faith estimate” of your loan’s closing costs -- your lender is required by law to give you one within three days of receiving your application. Ask if they’ll guarantee it in writing and if there’s room to negotiate on the extra fees.

5. What are rate locks and when can I take advantage of them?
Rate locks or lock-ins constitute a commitment from your lender to guarantee a certain interest rate and number of points for a specific time period. Interest rates can change daily, so you may want to lock in your rate early in the negotiations if they appear to be going up.

Ask if your lender charges a fee to lock in the rate, how long it can be locked it in for and if you can get the locked-in rate in writing. Most lenders offer “lock and shop” agreements that fix the loan price for 30 to 45 days while you shop around for the right home. Sometimes, however, lenders may be willing to hold the rate for up to four months. Lock in your rate “on application” as opposed to “on approval;” otherwise, if the market rises between the date you submit your application and the date your loan is approved, you’ll have to pay the latter, presumably higher rate.

6. What is the minimum required down payment?
The amount of your down payment helps to determine the rate and term of your loan. Larger down payments reduce the overall cost of your loan by reducing the size of the principal and usually enabling you to obtain a lower interest rate.

If your down payment is less than 20 percent, you will probably be required to pay private mortgage insurance (PMI). You can ask your lender to cancel PMI once you’ve paid down 20 percent of the original price or once you have attained 20 percent equity in your home. Your lender and mortgage insurer are required to automatically cancel your PMI once you reach 22 percent equity if your payments are current and your mortgage was originated on or after July 29, 1999.

7. Is there a prepayment penalty?
Most lenders will charge you a penalty if you pay your mortgage off early, sometimes as much as 3 percent of the loan balance or the equivalent of six months’ interest. Paying the penalty may be worth it if you can secure a better interest rate. Ask if the penalty would still apply if you refinanced your mortgage through the same lender. Determine in advance how the penalty is calculated; some penalties decline yearly and may even disappear altogether.

8. How long will it take to close my loan?
Your lender will have to assess your documentation and check your credit rating before granting you loan approval. Two weeks is typical, but the process may take significantly longer; six-to-eight-week waits are not uncommon. So be sure to apply for a mortgage far enough in advance to ensure the funds will be available at closing.

9. What might delay my loan application?
If your credit score is good, the pre-approval process should be relatively quick and painless. Your application may be delayed or rejected if you have bad credit, if there’s a problem with your appraisal or if information on your application is missing, incorrect or illegible.

10. What documentation will I need?
Your lender will ask for proof of income, the name and contact information of your current employer, your social security number, information on any assets you have and an appraisal of your home’s value. Ask for a checklist to make sure you don’t miss anything. “No-documentation” loans are available, but these traditionally involve significant down payments and higher interest rates.

Retirement Debt: Does a 30-year Mortgage Make Sense?

RE.com Tips & Tools — Sat, 10 Mar 2007 19:48:00 GMT

Tips on balancing debt and investments.

Retirement beckons, and you have many real estate choices to make. Do you downsize or relocate, or do you stay in a home in which you have a large amount of equity – or even own outright? If you sell, how much of the proceeds should you put into the new home versus savings or investments?

First off, know that if you want to finance the purchase, federal law prohibits lenders from denying you a mortgage loan based on your age. But most people’s income drops during retirement, so they might not qualify for as large a loan as in the past, says Pamela Hamrick, LendingTree Loans’ vice president of operations.

If you do take out a mortgage in retirement, it’s important to plan ahead for higher monthly expenses, such as property tax increases, or ballooning homeowners’ insurance premiums like those seen in Florida after the 2005 hurricane season, she says. “It all goes back to making sure you’ve got enough money somewhere for those potential changes, especially when you get on in years.”

Eve Kaplan of Kaplan Financial Advisors in Berkeley Heights, NJ, sometimes suggests 15-year mortgages for people who are still working, because their payments end sooner. People planning to live in a new home for only 10 or 15 years before moving into a retirement community should consider taking on a bigger mortgage rather than sinking most of their cash from the sale of a previous home into the property, she says. But interest-only or adjustable-rate mortgages can be a disaster for people heading into retirement, she cautions.

Financial planner Kenneth Robinson of Cleveland suggests asking yourself the following questions:

1. Does just the idea of having a mortgage make you nervous?

2. How reliable is the income you would have to draw upon to make the payment?

3. Are you used to paying a mortgage every month, or has the prior home been paid off for some time? The more a mortgage payment is a regular part of their lives, the more comfortable they are likely to be to keep it.

4. How aggressively or cautiously do you expect to invest in retirement? If the after-tax cost of the mortgage is less than the after-tax benefit of investing the money, having more money to invest starts to look good.

But Jim Ludwick of MainStreet Financial Planning in Odenton, MD, recommends putting from 75 percent to 100 percent of the net proceeds from the home sale into the new property. “Most middle-class clients that I deal with prefer not to have a mortgage in retirement and like to think about using a reverse mortgage in an emergency,” he says.

And Andrew Tignanelli, president of The Financial Consulate in Lutherville, MD, adds this thought:

“I have a saying for this exact situation. ‘If you are looking to make money in retirement, then consider a small, moderate mortgage. If you are looking for peace and contentment, then stay debt-free.’ ”

It’s a complicated question, so sort through your options carefully to decide how to balance your debt, investments and savings.

Qualifying for a Home Loan

RE.com Tips & Tools — Thu, 15 Feb 2007 19:41:00 GMT

When considering your mortgage, lenders look at a variety of factors, including your ability and willingness to repay the loan.

Your ability to repay is verified by your current employment and total income. Your willingness to repay is closely related to how you’ve fulfilled previous financial commitments. This is why lenders place such an emphasis on your credit report.

It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, perhaps one of your stronger points will make up for the weak one.

Low Down Payment Mortgages

Even if you do not have a lot of money to use as a down payment, you still may be able to purchase a home. More and more borrowers are taking advantage of low down payment mortgages and becoming homeowners with as little as 5 percent down. With these loans, however, you may be required to carry Private Mortgage Insurance (PMI).

TIP: For more information on how you can take advantage of the benefits of a low down payment home loan with mortgage insurance, contact your lender or real estate agent.

This information is adapted from "A Consumer’s Guide to Mortgage Lock-Ins" published by the Federal Reserve Board and the Office of Thrift Supervision.

Top 10 Tips for Building a Home

RE.com Tips & Tools — Thu, 15 Feb 2007 18:57:00 GMT

Planning to build the home of your dreams? Here's expert advice for every step of the process.

Building your own home can be exciting, but it can also be challenging. The following ten tips can help make sure it goes smoothly:

1. Get pre-qualified for a mortgage
Whether building a new home or buying an existing home, this first step is the same. By contacting a lender and providing them with some basic information regarding your debt, income and assets, you can find out the size of mortgage for which you are likely to qualify. Then, before that first shovel of earth is turned, you should make sure you get final mortgage pre-approval. This involves filling out a mortgage application and supplying a lender with the necessary documentation to check your financial background and credit rating so you will know exactly how much you can afford to spend.

2. Check the reputation of your builder

Many builders are out there, but not all are created equal. Do a little research to find out which builders have the best reputation. Whether you search for information online or get recommendations from your friends, find out whether a builder is respected for doing quality work as well as being punctual.

3. Be selective about location
The most important thing to decide when building a new home is where to build. What makes the community that you are interested in stand out? Often, new building developments are located on the outskirts of a city or suburban area. It’s therefore important to check if the area you are considering is close enough to transportation routes, shopping and schools. Also, find out if the developer is planning to add amenities that will enhance your lifestyle such as walking trails and ponds.

4. Watch your budget
New home communities list a base price for the homes that they offer. However, this is rarely the actual final cost when building a new home. Be aware that you can add thousands of dollars to the base price of a home very quickly if you get carried away upgrading the standard flooring, cabinetry or lighting. It’s important to know exactly how much you can afford and to budget accordingly.

5. Build with resale in mind
No matter how much you love the house that you are building, it’s unlikely that it will be the last home you will ever own. Knowing that, you should be mindful of its potential resale value. Don’t add so many upgrades that you overprice your home for the neighborhood. And don’t choose anything too out of the ordinary. Ask yourself if the features you’re considering installing are likely going to appeal to others.

6. Know your timeline
Building a new home usually takes many months and lots must be coordinated during this timeframe. If you are already a homeowner, your current home must be sold, you must make decisions regarding your new home and you must arrange a new mortgage. Get an estimate of when the building of your new home will be completed and plan accordingly.

7. Be prepared for delays
No matter what timeframe a builder gives you, there is always the possibility of delays. Inclement weather, shortages of supplies and labor problems can all factor into delaying the completion of your home. Be aware of this going into the building process and be prepared to be somewhat flexible.

8. Keep a close watch on progress
One way to help prevent delays and mix-ups is to stay involved in the building process. If possible, drive by the construction site to keep track of the progress that is being made. And keep in touch with your builder on a regular basis.

9. Avoid making changes
Try to avoid making changes to your designs once all of the plans have been completed. It will delay the completion of your new home and may add considerably to the final cost.

10. Arrange temporary housing
Chances are there may be a delay between the time you sell your existing home (or the lease expires on your current rental unit) and the time you move into your new home. If this is the case, you will need to arrange some temporary housing. Realize that you may be living there for several months so make sure it will be both affordable and able to meet your needs.

Buy-Downs Trim Monthly Mortgage Payments

RE.com Tips & Tools — Thu, 15 Feb 2007 18:42:00 GMT

Builders offer interest-rate incentives to entice buyers to purchase a home. But are buy-downs a good deal?

New-home builders typically are loath to reduce prices on new-built homes, but they may offer affordability-constrained buyers a variety of other financial incentives. One such incentive is the interest rate buy-down, in which the builder prepays a portion of the buyer’s early mortgage payments.

How does a buy-down work?

Perhaps the most common buy-down is the "3-2-1," which means the builder pays the lender an upfront fee to reduce the interest rate on your mortgage by 3 percent in the first year, 2 percent in the second year and 1 percent in the third year. After that, the buy-down would expire and your full mortgage payment would be due each month.

A builder that owns an affiliated mortgage company may offer you two buy-downs: a more attractive offer on a loan you obtain from the builder’s own company and a less attractive offer on a loan you obtain from another lender. Offers touted in new-home newspaper ads frequently involve a buy-down that’s available only if you finance your home purchase through the builder’s affiliated company.

Buy-down offers are negotiable in theory, but in the typical scenario, the builder presents an offer and the buyer either accepts or declines it without much, if any, negotiation.

Pros and cons of buy-downs

The chief advantage of a buy-down is the lower monthly mortgage payments in the early years of your home ownership, which may enable you to borrow more money or set aside savings for other needs.

A buy-down could be less advantageous than a lower home price, depending on the structure and value of the buy-down, the amount of the price reduction and the number of years that you intend to own your home. A lower price also could reduce your property taxes in some localities while a buy-down wouldn’t affect your property taxes.

Yet builders almost always prefer to offer a buy-down, not a price reduction because a lower price on one house might result in a lower appraised value of other houses the builder intends to sell later in the same community. Price reductions make it more difficult for the builder to increase prices while buy-downs help keep prices stable.

Buyers should shop around, buy-down or no

Builders offer buy-downs when interest rates present an affordability hurdle for buyers. The builder’s thinking is that the buy-down may entice the buyer to purchase a home or even a more expensive home. And the builder may be correct in that thinking.

A buy-down can be very attractive, but it shouldn’t be the decisive factor in your home purchase. Regardless of the buy-down, you should shop around, compare loan products from different lenders and take care not to overextend your ability to make your mortgage payments after the buy-down expires.

Step 3: Mortgage Pre-Approval

RE.com Tips & Tools — Tue, 23 Jan 2007 19:39:00 GMT

Getting pre-approved by a lender before shopping for a home helps you in two ways.

First, it helps you narrow down the homes under consideration because it tells you what price house you can afford. Second, pre-approval can give you a leg up over other buyers when you find a home you like. Sellers are more likely to accept offers from buyers who they know have financing secured, because the sale is more likely to close.

During pre-approval, lenders look at your entire financial situation. You will be required to show proof of income and submit your social security number, so the lender can review your credit. Pre-approval is not the same as prequalification; prequalification is an estimate of the amount of money you can borrow and it is not guaranteed.

Pre-approval is a good step to take before you start shopping because it shows sellers that you are a serious buyer. In fact, in some housing markets, for your offer to be reviewed it is necessary to be preapproved. That way, sellers can be certain the deal won’t fall through.

Remember that you can certainly buy a home for less than your pre-approval amount. Think of pre-approval as your limit. If your budget doesn’t allow for a $1,500 monthly mortgage payment but your lender says you can afford that much, stick with your budget. You know your spending priorities better than your lender.

Ask an Expert: What is a mortgage accelerator loan?

RE.com Tips & Tools — Wed, 17 Jan 2007 20:00:00 GMT

Q: I've heard you can pay off your home faster by taking out a "mortgage accelerator loan" instead of a regular mortgage. How do these work?

A: A mortgage accelerator is an innovative type of home loan that’s new to the United States. In the U.K. and Australia, however, these mortgages have long been used as an effective way to pay down your mortgage more quickly.

The first thing to understand is that a mortgage accelerator is a revolving home equity line of credit (HELOC), not an amortized loan. That means you do not have a fixed payment to make each month. Instead, you may pay only the interest for the first 10 years. Of course, paying only interest does nothing to reduce your mortgage principal, so here’s where the innovative part comes in: you arrange to have your entire paycheck deposited to your line of credit account. When you need access to your money for day-to-day expenses, you use the HELOC just like a checking account -- you can pay bills online or by mail, and you can make cash withdrawals with an ATM card.

So how does this save you money? The key is that interest on a line of credit is calculated daily, so every reduction in the balance, even if it’s only temporary, means you pay less interest. With your salary going directly into the HELOC, the balance will drop dramatically every time you get paid, and then it will creep back up slowly as you draw on the money. Meanwhile, instead of that idle cash earning little or nothing in a checking account, it will save you 5 or 6 percent (whatever the current rate is on the HELOC) in interest. Over the long run, with every unspent dollar of your paycheck going toward reducing your principal, you could wind up owning your home much more quickly than you would have with an amortized loan.

Most amortized mortgages allow you to make extra payments to reduce the principal, but if you wind up needing that money for an emergency, you can’t get it back without taking out another loan. One of the selling points of the mortgage accelerator is that you can reduce the principal with every extra dollar, while still having access to the funds should you need them.

Mortgage accelerator HELOCs come with one caveat: they can be dangerous for those who overspend. If your biweekly net income is $3,000, but you withdraw $6,200 over the course of a month -- which you’re free to do with a revolving line of credit -- your principal will go up instead of down. Rather than paying your home loan faster, you may wind up dragging it out longer. If you don’t have the discipline to spend less than you make, you’re better off with an amortized loan, which builds in the forced discipline of a stable monthly payment.

Owning a home is easier than you think

RE.com Tips & Tools — Fri, 12 Jan 2007 20:43:00 GMT

Don’t let common misconceptions prevent you from becoming a home owner.

Buying your first home can be intimidating. There’s a lot of misinformation floating around that can lead you to believe that owning a property is out of your reach. But it’s easier than you might think. Here’s what you need to know:

Buying versus renting
Monthly mortgage fees can be lower than the cost of paying rent. Plus, unlike rental payments that almost always rise, you can request a fixed-rate mortgage to lock in your monthly payments for the life of the loan. You can also write off the interest you pay on your mortgage. (It’s tax deductible up to a limit of $1 million, though always consult a tax advisor about your situation.) And, to top it off, you’ll be increasing your net worth by building equity in your home.

Making a down payment
Lenders no longer expect all buyers to have a down payment of 20 percent in order to qualify for a mortgage. According to the National Association of Realtors, today most first-time home buyers put 10% or less down on their homes. There are also government-backed down-payment assistance programs available to help you if you’re having trouble coming up with sufficient funds.

Qualifying for a mortgage
Don’t assume you won’t be able to qualify for a mortgage just because you have a low credit score. If your score puts you in the category of a “risky borrower,” you may be required to pay for mortgage insurance. You may also incur a higher interest rate. But once you’ve paid your mortgage down for a year or two, and you improve your credit score, you should be able to cancel the insurance and renegotiate the loan at a better rate.

Meeting monthly payments
If you can make your rent, you can meet your mortgage every month. Just be realistic. Make sure you have enough money left over to pay your other bills. Most lenders recommend that your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. When you first take possession, you’ll also need to factor closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance into your budget and allow for increases in ongoing expenses such as utilities and taxes.

Subsidizing your mortgage
Still not sure your money will stretch as far as you need? Don’t throw in the towel just yet. Consider getting a roommate to help meet the mortgage payments or renting out the basement. If you’re self-employed, moving your office into your home may enable you to write off a portion of the expenses (check with a financial advisor).

Know what you’re getting
Not all mortgages are created equal. Some first-time home buyers, attracted by the low monthly payments, opt for mortgages that don’t allow them to build equity, or, even worse, put them in a situation where they are losing money.

Steps to a Smooth Closing

RE.com Tips & Tools — Thu, 11 Jan 2007 20:18:00 GMT

How to keep everything in order when closing on a home

A home is the biggest purchase most people will make. It can be particularly daunting your first time, and the last thing you want is an unforeseen complication.

So from deciding you want to buy a home to closing day, here’s a list of tips to make sure everything is in order:

Go mortgage shopping. Do you go to several dealers to get the best price on a new car? People who want to save money do. A mortgage should be no different. Many lenders specialize in certain types of loans, regions or credit histories. Make sure you shop around and compare offers so that you’re working with the lender that best meets your needs. There are numerous things to consider: the type of mortgage, the term, the lender. Get as much information as you can.
Get pre-approved. Before you get too involved looking for a home, go ahead and get cleared by a lender. By being pre-approved, you know how much you can afford on a new home. You can also present the seller with more attractive terms and negotiate a better price. It also gives you an edge over other buyers who don’t have financing arranged yet.
Save money for closing costs. You will also need to reserve some funds for closing costs Expect these one-time fees and charges to range from 2 percent to 6 percent of the loan. Your lender will give you a good faith estimate of these fees so you’re not caught by surprise on closing day. Be sure to review it and ask your lender about any fees you don’t understand. These costs must be paid in cash (usually a certified check) at closing and cannot come from borrowed funds.
Hire a home inspector. You should never agree to buy a home until it passes a top-to-bottom inspection. Often, your real estate agent can suggest a home inspection company. Be sure to get a detailed, written report and attend the inspection so you can ask questions and discuss concerns. Sometimes an inspection will turn up problems that aren’t deal-breakers but are things you might ask the seller to fix.
Title search. To be sure you’re buying the house from its legal owner, your lawyer should search the title records. This fee is usually paid at closing. Your lawyer also needs to confirm during the search that there are no liens (claims on the property as security for money owed), overdue special assessments or other claims or outstanding restrictive covenants filed on record.
Get home insurance. Before closing, your lender will require proof of a valid homeowner’s insurance policy. As with your loan, shop around for the best value. If your new home is low-lying and near a body of water, check into separate flood insurance too.
Set a move-in date. When you sign a purchase agreement, you and the seller need to decide when you will take possession of the home and when you will move in. Put the agreement in writing. If you plan on hiring a professional mover, compare rates and services. Get recommendations from previous customers.
Get a copy of the settlement statement. Before closing, make sure your lender gives you a copy of the settlement statement (also known as a HUD-1). It indicates the total amount of money you will need at closing to cover the balance owed on the property and other disbursements. It also gives you a chance to iron out any discrepancies. You will then be prepared at settlement to pay the outstanding balance so the title can be transferred over into your name.

Mortgage Lock-Ins

RE.com Tips & Tools — Thu, 11 Jan 2007 07:54:00 GMT

Lock-ins are a way to ensure that at settlement, what you requested from your lender is what you'll get.

When you’re looking for a mortgage, you’re likely to shop among lenders for the most favorable interest rate, and the lowest points and other up-front charges. When you find the most favorable terms and the lender that you want, you’ll apply to that lender.

What is a Lock-In?

A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed.

Depending upon the lender, you may be able to lock in your interest rate and points when:

you file your application;
during processing of the loan;
when the loan is approved;
or later.

Pros	Cons
Lock-Ins protect you against increases while your application is processed.	A locked-in rate may prevent you from taking advantage of price decreases during this period.

Will Your Lock-In Be in Writing?

It is wise to obtain written, rather than verbal, lock-in agreements to:

fully understand how your lender’s lock-ins work; and
have a tangible record of your arrangements with the lender in the event of a dispute.

TIP: You should also obtain a blank copy of a lender’s lock-in form to read carefully before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional.

Will You Be Charged for a Lock-In?

Lenders may charge you a lock-in fee that may or may not be refundable if you do not close your loan. The amount of the fee and how it is charged will vary among lenders and may depend upon the length of the lock-in period.

How Long Are Lock-Ins Valid?

Lock-ins of 30 to 60 days are common but lock-in time periods may range from 7 to 120 days. Usually, the longer the period, the greater the fee.

Before deciding on the length of your lock-in:

ask your lender to estimate (in writing, if possible) the time needed to process your loan;
factor in any delays that might impact settlement (construction issues, etc.); and
ask for a lock-in with as few contingencies as possible.

What Happens if the Lock-In Period Expires?

If your lock-in period expires, you might lose the interest rate and the number of points you had locked in. Most lenders will then offer the loan based on the prevailing interest rate and points, which may now be higher due to market conditions.

Questions to ask your lender about lock-ins.

This information is adapted from "A Consumer’s Guide to Mortgage Lock-Ins" published by the Federal Reserve Board and the Office of Thrift Supervision.