When most people think about shopping for a mortgage loan they focus on interest rates and the monthly payment. But it's important to consider other factors when shopping for a new home mortgage. Here are some things to look for when evaluating loan products.

Understand Fees

When shopping for a new home mortgage keep in mind that there are a variety of fees you'll have to pay. Most lenders will charge a fee to pull your credit report and an application fee to process you loan application. Many of the fees you'll be charged will be paid at closing, such as the loan origination fees for processing the mortgage and lock-in fees to guarantee an interest rate while your application is being reviewed. Your Good Faith Estimate (GFE) will show the fees associated with getting your loan.

You also may end up paying points to get a lower interest rate. A point is one percentage point of the total amount of the loan. Generally, if you plan to stay in a home for less than five years it doesn't make sense to pay points. In some cases, you may be able to negotiate to get the seller to pay your points at closing.

Understand Interest Rates

Many homebuyers have chosen adjustable rate mortgages (ARMs) based solely on the initial interest rate quoted by their lender. However, it's also important to know what the fully-indexed rate will be for a new home mortgage. The rate on an ARM is determined by its index and its margin. The index is calculated from financial data and there are lots of different ones--they move with the economy. The margin is set by you and your lender--it's income to the lender and is negotiable. The total of index plus margin is the rate you pay and is also known as the fully-indexed rate. Your TIL (Truth in Lending) disclosure will show your true interest rate.

Low-Payment Mortgage Loans

While a low-payment loan may seem like the answer to your housing dreams, it's important to understand the purpose of using one. Interest-only mortgages allow you to have lower monthly payments because you're not paying any money toward the principal, and thus not building up any equity. Without any equity in your home, you could end up owing more than your house is worth if its value decreases. Another type of low-payment loan is a balloon mortgage, which offers low monthly payments for five to seven years. At the end of that term, the entire loan balance will be due. These loans can be helpful if you know you will have more money in the future and can handle a higher payment then, or if you are using the savings as part of an investment plan (and no, a ski boat doesn’t count as an investment plan)!

If you're considering a low-payment mortgage it's important to determine:

• How long you plan to be in the home
• Whether you will be able to afford increases in your monthly payment after the initial rate period ends
• Whether you will have enough cash for any balloon payments
• How important it is to build equity in your home.

Getting a new home mortgage involves looking at several crucial pieces of information. Take time to evaluate all the fees and variables that go into the total loan package before signing a contract. Make sure you have a breakdown of all loan costs before closing.

Source

AllBusiness.com