MARQUETTE - ReMAX 1st Realty Chief Executive Officer Terry Huffman of Marquette said homebuyers should look to being pre-qualified when shopping for a home, and consulting several lenders when shopping for a mortgage.
"What's changed in my business is there's like a hundred different ways to finance a house now," Huffman said. "Different lenders offer different types of mortgages."
ReMAX Michigan created a list of tips for successful home buying, including some helpful information on shopping for mortgages.
The experts say one of the biggest decisions to make before putting a contract on a home is how to finance the purchase. There are 10,000 lenders competing for your mortgage business. The days of simply walking into the community bank and negotiating with the loan department manager are over. Today, you can apply for a loan over the Internet or even use a mortgage broker to shop for your loan with hundreds of lenders. When choosing a lender, you want to avoid apples to oranges contrasts by comparing fixed rates to fixed rates, not fixed to adjusted rate mortgages. Create a chart that lists different types of loans, fees, and at least five mortgage providers (including a mortgage broker), the ReMAX experts recommend.
Huffman said most sellers expect that buyers will have been pre-qualified before by a lender before they shop for a home. Huffman said that being pre-qualified by a particular lender does not obligate you to working with that lender.
The experts suggest that every important decision needs to be clearly thought out. Developing a home buying plan can help you focus on the important factors and organize the entire process. You may even want to use a binder with sections on house hunting, home financing, service providers, etc. Loan pre-qualifying helps you determine the home price you can afford and presents you as a genuine prospect to the seller. A lender typically uses the 28% formula (your monthly mortgage can't exceed 28% of your monthly income) in approving your loan. Planning your actions and getting pre-qualified will keep you out of the panic mode and allow you to take advantage of opportunities. A thorough plan will save both time and money, according to the ReMAX Michigan tips list.
Huffman said talking to lenders and taking advantage of their professional advice can help buyers work with their own finances to better their profile for lenders. Many times, working with a local lender is greatly beneficial.
Experts suggest you determine which type of loan fits your particular needs. If this will be your first home or a "transitional home" -one you plan to own for a short time- an adjustable rate mortgage may be the best type of loan. If it's going to be your dream home or one you plan to raise a family in, then you may want the stability of a fixed rate mortgage. If you choose an ARM, the index should be based on the Cost of Funds Index if rates are increasing, and Treasury Bills if they are decreasing. The COFI's are less volatile over time than T-Bills; make sure the teaser rate is understood and what the real rate would be, the ReMAX experts suggested.
Whichever loan you choose; make sure that you scrutinize all the closing costs. If you are required to have a mortgage escrow account and private mortgage insurance, make sure you understand the terms and cancellation procedures (real estate agents have publications to assist you). Also, make sure there are no prepayment penalties so that you can utilize an accelerated mortgage plan. A good mortgage reduction plan can save you tens of thousands in interest costs, and shorten your loan term, with only small extra principal payments. If you experience negative changes in your job, health, or marital status, you can revert to the standard payments in your mortgage contract, the experts recommend.
John Pepin can be reached at 906-228-2500, ext. 206. His e-mail address is firstname.lastname@example.org.