Unless you’re established enough to pay cash for your home, you’ll need to take out a mortgage – a loan that you obtain to close the gap between the cash you have for a down payment and the purchase price of the home. The amount of this loan will be determined by the price of the home and your down payment. Getting pre-approved for a specific mortgage makes known the price range your lender will approve, which gives you more buying strength and direction.
Lenders factor in sales price and down payment, but place more importance on how much you can handle on a monthly basis. The term of loan, the interest rate and the principal amount of the mortgage determines the amount of your monthly payments. The higher the interest rate, the higher the monthly payments. The length of most real estate loans is 15 or 30 years. Note that you must also add property taxes, home insurance costs, and, in some cases, homeowner’s association fees to the total for a realistic monthly obligation.
The most important thing to look for when you’re shopping for a mortgage is the interest rate, right? Not necessarily. There are many other factors to consider, including the lender’s charges for making the loan, the terms under which the loan will be approved, and the lender’s reputation for timely completion of loan applications necessary in meeting purchase agreement deadlines.
When real estate agents are involved in sales transactions, they don’t stipulate which mortgage companies to use; however, they can provide the names of established lenders who have consistently provided good service to their customers. They can also offer general information about different mortgage options available today. Using a low interest rate as the basis for choosing a mortgage could cost you money – and perhaps the home you want – if the company cannot deliver on its promises.