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Use Your Head When Shopping for a Mortgage

Finding the right mortgage is really not that difficult, especially if #1: You have a brain and #2: You use it. There are numerous mortgage options out there, and there is one to fit almost every need. The key to finding the right one for you is to be prepared.

If you feel you can trust your lender to help you choose the best loan, good for you, but keep in mind, you are the only one who knows what terms you are comfortable with and what you can afford.

Before you even decide on bungalow or brownstone, there are a few things you can do to make mortgage shopping less scary, including:

1 - Check your credit rating. People who have good credit and pay their bills on time get the lowest rates on loans, especially mortgages, because they are a good risk. If your credit isn't up to par, fix it before you go mortgage shopping.

2 - Decide how much you can afford. Think about the amount you are comfortable paying for your house each month, and then shoot for a mortgage that is a little less than that. Give yourself some financial breathing room.

3 - Scrape together the biggest down payment you can - 20 percent is ideal. The bigger the down payment, the lower your monthly payment will be. You also will pay less interest during the life of the loan and build equity in your home quicker.

4 - Research interest rates in your area online. Check the rates various banks and lenders are offering so you will know what to expect.

5 - Ask friends and relatives to recommend a good lender. Chances are they had a good experience they can share.

Now that you know what you want and need from a mortgage, it is time to go shopping. And I'm not talking about a house, yet. Getting pre-approved for a loan is essential to getting the house you want. Meet with two or three lenders. Doing business over the Internet or phone is acceptable, but face-to-face contact will give you a better idea if you trust the lending agent or not.

Once you are pre-approved, you are ready to go house shopping! You know what you can afford and you know you have a loan waiting for you. Home sellers and agents will welcome you with open arms (and home-baked cookies) because they know you are a serious buyer.

After you find your home and make an offer that is accepted, it is time to decide what type of loan fits your budget. There are several available, but the most popular are:

1 - Variable Rate Loans. If you like to gamble, then you may prefer a variable loan, which can increase or decrease depending if interests rates go up or down. You can also start with a variable rate (if fixed rates are high) and then change to a fixed rate down the road, but it usually costs to do so.

2 - Fixed Rate Loans. If you would rather save your gambling money for a trip to Las Vegas, you may want a fixed rate loan. These types of loans are normally available in 15-year and 30-year. Getting a fixed rate guarantees your interest rate for the life of the loan and you won't have to worry about payment increases.

If you can afford it, get a 15-year fixed as your home will be paid off sooner and interest rates are usually lower, meaning you will pay a lot less for the house in the long run. Choose a 30-year if you want more cash in your pocket every month. You can still add to your payment whenever you have extra money, allowing you to pay off the house sooner.

Buying a house is a serious undertaking that affects your lifestyle and your future. Be just as smart when choosing a mortgage and lender as you are when selecting a location for your dwelling. Though you heart may have its say in helping you to find the right home, you must use your head to find the right loan.

Learn more about this author, Kenda Robertson.
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