FHA Mortgage Shopping
For most people, a mortgage is the biggest investment they’ll ever make. Generally, it is something people only do a few times in their life. Because of this, it is important to know what to look for when shopping for mortgages lenders to ensure you get the best deal for you and your lifestyle.
Deceptive Teaser Rates
While the government keeps pretty tight reigns on what mortgage companies are allowed to say and do, there’s still a lot of leeway for deceptive marketing. Lenders will pull you in with offers of extremely low rates, not saying until after the fact that those rates are reserved for those with the best credit, great income, and sizeable down payments. Because the way the regulations work, deceptive loan officers can lead you through the mortgage process making you think you’re getting their best deal. It might not be until real work begins to get done that you learn you fall into a different category and won’t be getting the rates you thought you would.
Annual Percentage Rate
The government has made it the law for FHA lenders to disclose the Annual Percentage Rate (APR) for all loans they are offering. This is your interest rate adjusted for costs which are included in the loan. While this number can give you a more accurate idea of what you’re actually paying, it is important to note that there’s quite a bit of leeway on what lenders must include for calculating this number. While the government mandates this number be available, it does not have to include all the fees associated with the loan. Since lenders can and do create a wide variety of fees to make money, they often leave out those fees which aren’t required, giving you a false idea of what you’ll be paying. When talking to lenders, it is important to ask which costs are included in the listed APR and which are not. They are required by law to give you a full and accurate “good faith estimate”, which will include all of this.
All mortgage home loans have closing costs. All of them. You can either pay them upfront, negotiate to have the lender, seller, or real estate agent cover them, or roll them into the body of the loan. One way or another, they need to get paid and someone has to pay them.
Adjustable Mortgages Can Cause Trouble
Adjustable Rate Mortgages, or ARMs, are tricky. People are often lured in by the initial low costs they provide only to find themselves with higher payments once the adjustment period begins. That’s not to say there’s no place for ARMs. ARMs tend to start with extremely good interest rates, often a point or two lower than you’d get for a fixed rate mortgage. This rate is usually good for the first three to five years, depending on your mortgage, and then the interest rate will fluctuate from year to year based on the market. For people who know they’re only going to be in a home for a fixed amount of time, this can be a great option. But, if you think you may be around longer, be prepared for anything.
Many people have thought they were in an ideal situation only to see market fluctuations cause their rates to double or triple overnight. This isn’t a scare tactic, it’s reality. An ARM’s rate is only as good as the market once your initial term wears off. Some people get an ARM with the intention of refinancing it into a fixed rate mortgage before the initial three or five-year term is over. The only problem is nobody knows what interest rates will be like in three to five years.
There’s a lot of upside to an ARM and a lot of potential pitfalls. This is a loan you’ll definitely want to consider very carefully before making a decision.
Pay Attention to the Fees
Every mortgage comes with closing costs, a fixed set of fees associated with the cost of doing a home loan. Many lenders will add in a lot of fees under different names to pad their bottom line. The fees that are necessary can vary from place to place and under different state regulations and zoning. If you’re not sure what a fee is for, ask your lender. If the fee sounds fishy or unnecessary, it probably is. And the truth is, anything that isn’t directly required for the loan, such as an appraisal or title fees, can be waived by the lender. Remember, the lender wants your business and just like a car salesman, has wiggle room and can cut down prices.
When FHA Loans Can Help
FHA loans are great option to help you buy a home if you have less than stellar credit or can’t afford a big down payment. Since FHA-backed loans only require a 3.5% down payment, they are more accessible to more people. Additionally, since FHA loans are federally insured, there are rules and limits on how much lenders can charge for closing costs, so you’ll know you’re not spending money where you shouldn’t be.
FHA loans can be greatly beneficial if you find yourself in the right circumstance. If you have exceptional credit and a big down payment, you’re better off pursuing a conventional mortgage because you’ll save a lot more money in the long run.
To see if you qualify for an FHA Loan, contact a Mortgage Advisor today.