Mortgage Loans

Choosing a Mortgage Loan Lender

Buying a home is a dream come true for most people. The process, however, is never a walk in the park, keeping in mind that this could be one of the largest purchases you will have to make in a lifetime. Fortunately, with a mortgage loan, you are a step closer to becoming the owner of your dream house. Choosing the right mortgage lender can an overwhelming experience, especially when you are unfamiliar with mortgaging. This article highlights everything that you should know about mortgage loans and tips on how to choose the best mortgage loan lender.

 

Understanding Mortgages

A mortgage is a type of loan borrowed to refinance or finance the purchase of a property. A mortgage is just like any other loan. It is repaid in installments, with interest, and within a specified period. The only difference is that mortgages are specifically designated for the purchase of a property.

 

Defining Mortgage Refinancing

Mortgage refinancing is the replacement of an existing mortgage with a new one. This is done by paying off the initial mortgage before getting a new loan as a replacement. People refinance their mortgages to have a shorter mortgage term, get a lower interest rate, or shift from a fixed-rate to an adjustable-rate mortgage, or vice versa.

 

Types of Mortgage Loans

There are several types of mortgage loans, including the following;

1. Fixed-rate Mortgages

The interest rate of a fixed-rate mortgage remains the same throughout the repayment period. This means that your monthly and annual installments stay the same for the entire mortgage term.

2. Adjustable-rate Mortgages

An adjustable-rate mortgage has interest rates fluctuating from time to time. The interest rate is dependent on the market’s base rate.

3. Federal Housing Administration (FHA) Mortgage

This is a type of mortgage offered by the federal government through the Department of Housing and Urban Development, which insures mortgagors against possible losses during the mortgaging process. Unlike most mortgages, the FHA mortgage allows borrowers to make a down payment of as low as 3.5% of the principal amount.

4. Veterans Affairs (VA) Mortgage

The VA mortgage is offered to members and families of individuals who have been on military service. The mortgage is provided by the federal government through the Veterans Affairs Department, without any down payment.

5. USDA Mortgage

The United States Department of Agriculture mortgage is available to individuals who live in rural areas and have limited access to other conventional means of house financing.

6. Jumbo Mortgage

A Jumbo mortgage is large, exceeding the conforming loan limits that are highlighted by government-sponsored agencies, Freddie Mac and Fannie Mae. Their interest rates are relatively high, and they demand a high credit quality from borrowers.

 

Mortgage Application Process

The mortgage application is a process that runs through pre-approval to closing. Here are some essential steps of the application process.

• Pre-approval

Mortgage lenders want to ascertain whether you can repay your mortgage. This phase will involve an evaluation of your credit score and credit history to establish your creditworthiness.

• Make an Offer

Once you have shopped for your house of choice, you can now make an offer to the homeowner, outlining contingencies that must be met before completing the process.

• Mortgage Application

Once your lender has approved that you are legible for a mortgage, you will be required to provide several documents as proof of identity, financial status, and property information. Once these documents are submitted, the lender processes a Loan Estimate, outlining the costs and terms linked to an expected mortgage.

• Underwriting

Underwriters will verify your eligibility for a mortgage in relation to creditworthiness, the value of the property in question, and the validity of all documents submitted. At this point, the underwriters can either reject or approve a mortgage.

• Closing

In the event that a mortgage is approved, conveyancers representing all the parties will agree on when to close the application process. The closing phase is all about signing the necessary documents as a sign that a contract has been initiated between you and the lender.

 

How to Choose a Mortgage Lender

Here are a few tips on how to choose the right mortgage lender for you.

• Get Your Credit Score in Check.

Having a high credit score is always an added advantage when it comes to getting a mortgage. Approach the concerned agencies for an update on your credit report.

• Know What You Want

There are plenty of types of mortgages and a variety of mortgage lenders available in the market. Be sure of what exactly you want to ensure that you get the best lender for the right mortgage type.

• Compare Interest Rates

Different lenders offer varying interest rates. An interest rate is a contributing factor in determining the total cost of a mortgage. Ensure that you go for a lender with an affordable interest rate.