While looking for your home, you should also spend some time investigating mortgage lenders and products.
Mortgage loans and lenders come in all shapes and sizes and it is important to be knowledgeable about your options and especially to steer clear of
predatory lenders . If it sounds too good to be true, it probably is. Shopping for a loan is similar to shopping for any other large purchase, it is important to take the time to shop around for the best product and to compare rates, fees and terms.
Mortgages have several components you need to consider -- interest rate, term, fees
- Adjustable rate mortgages ("ARMs") have interest rates that will change over the life of your loan. We recommend that first time buyers approach adjustable rate mortgages with caution, if at all. The risk of your interest rate increasing, which increases your monthly payment, can cause strain to your financial situation.
- Interest rate only mortgages are structured so you are not paying down the principal of your home. We recommend that first time homebuyers do not obtain this type of loan.
- Term refers to the length of the mortgage -- most loans for first time homebuyers are for a thirty-year period. Some mortgages have shorter terms such as 20 or 15 years. With these, you will own your home outright in a shorter period, but your monthly payments will be higher.
- Fees will vary from bank to bank but will typically include an application fee, fees for an appraisal, credit check, bank lawyers, survey, mortgage recording tax, etc. Most of the fees will be collected at closing, though the application credit report and appraisal fees are generally collected up front.
- Some loans will require you to pay points upfront. --A point equals one percent of the loan amount. Sometimes by paying a point upfront, you can lower the interest rate of the loan.
- APR is the cost of the mortgage stated as an annual percentage rate. It includes such items as interest, mortgage insurance, and loan origination fee (points).
For additional information click here for advice from the Federal Deposit Insurance Association.