Finding The Mortgage Solution That Fits Your Lifestyle

Ed Hensley

By: Ed Hensley - Vice President and Director of Mortgage Lending , First Financial Bank

Categories: Financial, Financial Planning

As we continue to experience positive shifts in the economy and interest rates remain low, now is a good time to consider purchasing a new home. There are a few key steps every buyer should take before beginning the house search.

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Whether you are looking to upsize, downsize or buy your first home, making the decision to invest in a home can be an exciting and sometimes overwhelming experience.

Pre-Approval

Today, there are numerous lending options available and a good credit history can help buyers lock in a low interest rate. The pre-approval process is an important step and will give you confidence before you begin the search for a new home. Buyers should be ready to share information including residence history, employment history, current income including salary, commission or bonuses, assets, debts and ownership of additional properties when meeting with a mortgage loan consultant.

Home loan pre-approval provides a clear picture of one's buying power and ultimately guides the selection of the right home. In addition, this meeting may assist in identifying lending solutions that fit individual needs, lifestyles and plans for the future.

Loan Options

It’s important to choose a loan solution that best fits one's current financial situation, with options including a fixed-rate mortgage, adjustable-rate mortgage or FHA loan.

When analyzing a fixed-rate mortgage, buyers may expect an interest rate and monthly payment that remains the same over the term of the loan. With this type of loan, they have the opportunity to lock in a low interest rate with the security of consistent payments each month. Another option is an adjustable-rate mortgage (ARM), in which an interest rate will vary based on the terms of the loan agreement and relevant market conditions. When utilizing an ARM loan, buyers are granted the advantage of the lowest possible principal and interest payments. Should a buyer enter the purchase process knowing they won't be in the home for an extended period of time, or if they expect to refinance within a couple of years, an ARM loan is a good solution. Finally, a Federal Housing Administration (FHA) loan qualifies an individual for low down payments and decreased closing costs, as it is insured by the Federal Housing Agency.

Costs to Consider

As you begin the mortgage lending process, buyers should be prepared for the additional costs that come with purchasing a new home. Closing costs are common when officially transferring the ownership of a property. They may be negotiated and result in the seller paying all or a portion of the closing costs that might include a survey, origination fees, attorney fees, taxes and title insurance. In addition, a percentage of the loan amount can be paid at closing to affect the interest rate. Each point is equal to one percent of the principal loan amount, and if paid, a lower interest rate is provided. The lender can also pay points to offset closing costs or help a buyer with limited funds. These are referred to negative points.

Another necessary item in the home purchasing process is the establishment of the escrow account that will be created by a third party. Created to hold money that will be used to pay taxes and insurance, an escrow account generally requires a buyer to pay one-twelfth of the annual property tax and insurance into this account with each monthly mortgage payment.

Additional Items

Upon the purchase of a home, two additional items of note for a buyer are annual percentage rate (APR) and tax advantages. The APR is the full cost of the loan, including interest and all loan fees, expressed as a yearly percentage. All mortgages use the same rules in calculating the APR, so it proves to be a noteworthy comparison tool. Furthermore, the interest you pay on your mortgage might qualify you for a tax deduction at the end of each year.

Whether you're a first-time home buyer or an experienced one, you want to identify a mortgage program that fits your family and lifestyle. Sit down with a mortgage loan officer to review and understand all the options available to you.

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