Your priority at this point in your evaluation is to find the available mortgages in the market that best meet your needs. You can save a lot of time during this activity by quickly eliminating any options that are unsuitable because they don't meet your key requirements. For example, if you have a limited budget for this purchase then you can ignore any home finance options that clearly exceed your price limit.
When determining what home finance option is best for you, consider what loan types there are, and which features are most important to you. If having low interest rates is a high priority, then you might consider a Honeymoon rates loan, a discount mortgage, a basic loan, or fixed rate loan (if you anticipate market rates to rise). Keep in mind that loans offering lower interest rates generally only offer the lower rate for a specific period of time, such as one year, before reverting to the standard variable or adjustable rate. These loans are often 'no-frills' loans and don't have many of the features found on other loans. You will need to consider how much difference one year of low interests rates will make to your own circumstances, taking into consideration the long-term view of having the mortgage for many years.
Fixed rate loans are very popular as they give you the security of knowing what your monthly repayments will be. However, if you want to be able to pay off the home loan sooner, make sure you can make additional payments without incurring a fee. Similarly, if you want to be able to withdraw any extra payments you have made, check that the loan has a redraw facility.
If you're unsure of whether to apply for a fixed or variable loan, there might be the option of getting a split loan, where a portion of the loan has a fixed interest rate, and the remainder is subject to variable interest rates. Similarly, if you want a loan with greater flexibility, you might consider a loan that gives you switching or conversion options to change from variable (tracker) rates to fixed interest rates without incurring penalties associated with closing and renewing contracts.
In some countries, you might be able to obtain loans with an offset savings account that allows you to reduce the mortgage amount by the balance in the linked savings account, which means that your interest payments will be less. Similarly, if paying off your mortgage as soon as possible is important to you, then check that you can make fortnightly or weekly payments, as opposed to monthly payments, and check whether you can make lump sum payments or pay off your mortgage early without incurring penalty fees.
Tip: Get quotes from several home financing providers and compare them. Determine what the company's best interest rate and terms are for you. This can be done online, most of the time. This provides you with a clear understanding of what is available to you through this lender. You can better evaluate how well they meet your budget goals.
When evaluating how well a home financing company fits your needs, consider the cost to you in several ways. A home financing company should be able to provide you with a basic amortization table that will determine how much you will pay for the loan with interest, how much your monthly payment will be, and how much of your monthly payment will be put towards interest and principal. Also, they should disclose any monthly account keeping fees or other charges, such as the loan application fee, which can be several hundred dollars. All this information can help you to determine the right home financing company as it provides you with a clear understanding of the costs associated with owning the home through this particular lender. When you compare several home financing companies in this way, it is easier to see which offers the best financing overall.
You can even do this yourself prior to approaching a lender, since the majority of real estate agent websites now have loan and mortgage calculators. You simply input the cost of the home, how much you can afford to put down, length of repayments, what the current interest rate is, taxes, etc, and that will work out what your monthly payment will be and how much interest you will pay on the overall mortgage. This should be pretty similar to the information you get from a lender, and will give you a good idea if they're overcharging you or not.
Tip: Before you begin shopping for a home to purchase, evaluate and select the home financing that you need. This will help you to understand the basics of what funds are available so that you don't set your hopes on a home too high to qualify for.
A key area to evaluate a home financing company on is in their customer service. When you call and contact them now, you should be able to get a feel for how well they will serve you in terms of answering questions, solving problems and meeting your needs. Since a mortgage or other home loan is crucial to purchasing the home, a good customer service agent should provide you with multiple loan options including different terms, interest rates and programs to fit your needs to secure that home purchase.
Tip: If there is the possibility of changing location and purchasing a different property, you might consider finding a mortgage with a portability fee. This allows you to keep your loan, without having to pay exit and re-establishment fees.
In addition to evaluating lenders by their front-of-line service, also consider their previous experience and past records with customers. You may choose to research them through your relevant consumer protection agency, such as the Better Business Bureau in the United States, or the Australian Competition and Consumer Commission (ACCC). This may help determine how well they serve other customer's needs. Problems with the way they treat others may mean problems for you as well.
Although customer service is a factor, more important is the variety in loans that they offer, and whether they can cater to your specific needs and situation. For example, if you have bad credit, will they hold that against you or realize that people fall into debt and often it's not all down to them? If you are a first time homebuyer do they offer a FHA (Federal Housing Administration) loan or its equivalent that you may qualify for? If you are a veteran, do they offer a VA loan, which provides federal backing of your loan should you default on it. This gives the lender more security in lending to you, which ultimately lowers your interest rate.
Furthermore, do they offer you alternatives to a traditional mortgage like rent-to-own, for example? This is a perfect mortgage for people with poor credit. As the name suggests, you find a home and “rent it” from the seller, with the rent money going towards the mortgage. It can even save you money, since all your payments are going towards your mortgage, unlike more traditional mortgages where you also pay off the interest.
Other specialized loans you might consider are Line of Credit (equity home loans) or reverse mortgages. These enable you to free up equity in your current home and use the excess cash for other things, such as purchasing shares, paying for children's expenses, or other living costs. The minimum repayment required for LOC loans is usually only the monthly interest that has accrued; however, the principal will eventually have to be paid over time. Whereas reverse mortgages do not require any repayments until the property is sold or the owners move from the residence. Interest rates for both these loans tend to be higher than average home loan rates, and you can only be eligible for a reverse mortgage if you are 60 years or older. If either loan is appealing to you, make sure you make further investigations on the benefits and disadvantages of these loans before signing off on anything.
Tip: Ask the lender if the company will hold and manage your loan or if they will sell it to another mortgage company. This is a common practice in many areas but will affect your home's purchase. If you qualify a home financing company as one that will provide adequate service, provide the features that you want, and the benefits that you need, and the loan is sold, this may no longer be the case. Lenders will outright tell you if they will manage the loan or are likely to sell it.
When determining if a home financing company is right for you, you will want to ascertain what their assessment criterion of you is. All financing companies should be upfront about what requirements you must have in order to purchase a home through their loan products. If you fail to meet their specifications then you will have to look at other lenders.
When you were considering your requirements in home finance it's likely that you singled out certain factors such as loan type, interest rate, repayment term and fees as being of major significance. As with so many other products, the more features offered, the higher the price.
Buyz123 has created a checklist containing examples of major features; you can work from this checklist when evaluating how well various finance options meet your personal needs:
Features Checklist
Finance Types
- Bank financing, credit union, mortgage lender, owner financing, family or private loan financing, lease to buy, which fits your needs
- Fixed interest loans
- Adjustable rate mortgages (ARM, standard variable rate, tracker)
- Split fixed and interest loans
- Line of Credit loans (equity home loans)
- Reverse mortgages
- Interest only loans
- Honeymoon rates loans (discount loans)
- Basic variable home loans
- FHA, first time home buyer ability for federal banking
- VA loans for veterans
- “Zero down” loans
- Terms available - 2 to 40 years
- Lender holds loan or sells to another mortgage lender
- Lender does business in your state
Cost
- Interest rate offered on loan
- Application fees
- On-going account keeping fees
- Closing costs - paid by you, by home seller, rolled into the loan
- Appraisal fees to approve loan to value of the property
- Difference in cost of loan when you have no credit, bad credit
- Pre-approval amount
- Exit fees
- Additional repayments fee
- Break cost
- Combination loan fee for split loans
- Late payment fee
- Redraw fee
- Portability fee
- Convert from variable to fixed rate fee
Features
- First payment due date
- Payment amount - monthly, fortnightly, weekly
- Escrow account to include real estate taxes and insurance
- Early payment penalties
- Late payment penalties
- Points
- Additional payments - principal or interest
- Monthly fees assessed on the loan
- Redraw facility
- Offset savings account
- Online banking and bill pay of your payment
- Additional funds for repairs, remodeling at time of sale
- Work with title company, attorneys to close sale
Qualifications Required
- Employment qualifications required (unless self-employed)
- Insurance on the home needed
- Credit score to be approved for loan
- Credit score that will lower interest rate or raise interest rate
- Monthly income required
- Past credit history
- Financing to build home available
- Collateral that is necessary to obtain loan (usually the home itself)
Company Information
- Determine the actual lender
- Company history - stable, new company, unknown
- Better Business Bureau rating
- Previous customer recommendations
- Full service company, limited service
- Customer service you receive now
There are a lot of features listed here, and some of them may not be relevant to your particular requirements. So, work your way through the list and assess how each of these features impact on your needs. You can then create a personalized checklist of the features you really require in home finance.
Once you have finished evaluating the mortgages available in the light of your personal needs and arrived at a short-list of 'possibles' you are ready to progress to the next stage. This involves comparing the home finance one-on-one in order to find those that really stand out.
Evaluate how well Home Finance compares with competing Home Finance
Comparing the options on your interim short-list, one to another, is an important part of the purchasing process - we all want to get the best finance package we possibly can. So once you have established a short-list of finance options that meet your needs it is time to evaluate how well they compare in fine detail. This way you can assemble a select list of mortgages that stand out from the crowd.
Questions to ask yourself:
Which home finance on my short-list offers the best value for money?
Which of these options best meet my needs?
Which home finance is the easiest to repay?
Which of the options seems of the highest quality?
Which short-listed home finance has the best interest rate?
Which home finance do I like best?
Although each state and country differs, there are some areas that are “common ground”. For example, unlike mortgages 10 to15 years ago, it is now easier to switch to a different lender if their mortgage or interest rates are better than your current one. You may be penalized for changing lenders, but the overall savings you make can be more than worth it. Therefore, make sure you look at all the ins and outs of what mortgages are available.
By answering these simple questions, you are actually eliminating mortgages that aren't absolutely right for you.
Once you've worked through the Evaluation step you will have a final short-list of home finance options that meet your needs and stand out from competing products on the market. It's time then to move on to the third and final step: Purchase.
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