In light of the current turmoil in the mortgage industry, FinanceGenius will breakdown the basics of acquiring a mortgage that best meets the needs for you and your family. Our primary goal is for you to become better educated, so the next time you are in the market for a mortgage you don't find yourself in the same quagmire like thousands of homeowner's are currently experiencing. If you will take the time to learn the basics from us, you will be less likely to enter into a loan that may put you in a tough predicament in the future. This is not intended to make you an expert, but we hope it will help you feel more comfortable the next time you are in the market to purchase a new home or refinance your existing loan.

When beginning your search for a mortgage, make sure to research and understand all of your different options. Most loan officers are very consumer conscience, but you need to be wary of the individual that is going to guide you to a loan that makes them the highest commission possible rather than the loan that would benefit you the most.

Getting Started:

1. Personal Research and Getting Prepared
   • Understanding your budget limitations
     1. Your monthly mortgage payment should not exceed 30% of your net income (Multiply your monthly wages by .30 to determine this figure).
     2. How much additional debt are you carrying, i.e. auto payments, insurance, credit card payment, student loan, etc.
     3. Account for additional expenses to pay bills, property taxes and home owner’s insurance.
     4. Once you determine how much of your paycheck is actually left after all your bills are paid, use our loan calculator to estimate how much house (monthly payment) you can afford.
   • Credit Research
     1. Have a complete credit report pulled so you can identify the areas that you can improve, i.e. credit card balances, late payments. This is important so you get the lowest interest possible. If your credit is in bad shape, expect to pay a significant amount more than your friend that has always taken care of their credit.
     2. Use one of the online services to monitor your credit, i.e. freecreditreport.com. By using this service you can protect yourself from identity theft as well
     3. Knowing you credit score will also give you some leverage when discussing interest rates with your loan officer.
2. Research your lending options for a Home Mortgage
   • Local Credit Unions are typically going to be a great place to start. There are numerous credit unions in your vicinity that you are eligible to join. They have very competitive rates and a plethora of other benefits to take advantage of.
   • The local and national banks will offer mortgages but their rates tend to be on the high end of the industry.
   • Mortgage Brokers will give you access to multiple lenders and therefore be able to access better rates than any single bank. These people do this for a living so they know how to get a loan done correctly and expeditiously.
3. Different Types of Loans
   • Fixed Rate Mortgage – In simple terms, your interest rate will not fluctuate throughout the life of the loan
   • Adjustable Rate Mortgage (ARM) – The interest rate will fluctuate periodically, usually in relation to an index. Your payments may increase or decrease accordingly. If you are tied to a budget, this option is not recommended.
   • Interest Only Loans – You will only be paying the interest on the principal amount you borrowed. Although the payments are typically much lower, you are not building any equity in your most valuable asset. You might as well be renting so you can eliminate the concern of property taxes and any other miscellaneous expenses.
   • FHA Loans – These loans are backed by the federal government and they are intended for first time home buyers. These loans typically require a much lower down payment, lowering closing cost and lower overall costs. If you qualify, this loan is most likely the best option.
4. Terms within the Loan
   • Closing costs – Lenders charge numerous different closing costs including origination fees, appraisal fees and prepaid interest. You should always request a Good Faith Estimate of these costs before moving too far down the road with the lender you have chosen. These costs could have a significant impact on your decision of which lender to choose.
   • Discount Points – Lenders will allow you to purchase discount points to lower your interest rate. On a $200,000 loan a point will cost $2,000. The points are typically equal to 1% of the loan amount and each point will generally lower your rate by .25%
5. Escrow – We highly suggest that you inquire about an escrow account. These accounts will allow a third party to hold fees that are included in your monthly payment for both home owner’s insurance and property taxes. If you have one of these accounts set up, it will help protect you from the large year end expenses that a lot of people have to come out of pocket for.
6. Closing – This is the only enjoyable part of the entire transaction. At this point you have chosen your lender, provided all of the necessary documentation, you understand all of the fees associated with your loan and the loan structure (term, closing cost, prepayment penalties, etc.). All that is left is to sign the paperwork. If you have any questions about any part of the loan or the process, you need to ask them prior to getting to this point.