2007-08-31 / Community

Notes On Consumer Affairs

Shopping for a Mortgage
Commentary By Assemblywoman Audrey Pheffer

AUDREY PHEFFER AUDREY PHEFFER Are you ready to buy a house? Have you picked out the type of house you want? More importantly, have you figured out how you are going to pay for your house? Shopping around, and securing the best mortgage possible for your new home will save you money and held to ensure your future financial stability. Here are several important tips to keep in mind when looking for a mortgage.

The first thing to determine is how much you can afford to pay. Take a look at your budget, debts and credit score in order to get an idea of your financial situation and how a monthly mortgage payment would fit into your budget. Be sure to factor in closing costs and other expenses, such as home inspection and moving costs into the total cost of any house you may be considering. As a general rule of thumb, most financial experts recommend that consumers with good finances consider houses priced at no more than three times their gross yearly salary. Lenders, mortgage brokers and online mortgage calculators can give you an idea of the size of mortgage you are likely to qualify for based on your financial status.

Once you have calculated your budget and determined the amount of money you can afford to borrow, its time to shop around and compare offers. You can obtain a mortgage through several types of lenders, including commercial banks, savings and loan associations, credit unions and mortgage companies. Contact several lenders and compare prices. You may also consider hiring a mortgage broker to find a mortgage for you. If you use a broker, keep in mind that although they may have access to several lenders, and they may be able to help you find a good product, unless you have contracted with them to act as your agent, brokers are not obligated to get you the best deal. Even if you are dealing with a lender, be sure to find out whether a broker will be involved in the transaction, and find out how the broker will be compensated. Some brokers are given additional compensation if they get the borrower to agree to a higher interest rate. As with any major purchase, negotiate with the lender and the broker to try and secure better terms.

When comparing offers, take note of three major elements of the mortgage agreement; rates, points, and fees. Ask whether the rate is fixed or adjustable. If you select a mortgage with an adjustable rate, your payments could go up with increasing interest rates. Pay attention to the loan's Annual Percentage Rate (APR). This yearly rate includes the interest rate, as well as any points (fees paid to the lender or broker), loan origination fees, closing costs and any other charges you will be assessed. Be particularly wary of newer, exotic mortgage products such as interest only mortgages, which allow the borrower to only pay interest on the loan for a period of time, and adjustable rate mortgages which allow the borrower to choose from several payment options each month, often referred to as option-payment ARMs. These products may make sense for some consumers, but if you are considering them be sure to examine the terms and conditions closely.

Keep in mind that your payments could double or triple in the coming years, and in instances in which your payments do not cover the interest on the loan, you may end up in a "negative amortization" situation in which unpaid interest is added to your mortgage balance.

Obtaining a mortgage can be a challenging, time-consuming experience. But if you take the time to shop around, compare offers from numerous sources, and negotiate, you can save thousands of dollars.

For more information on selecting the best mortgage, you may want to visit the Federal Reserve Board's website on the topic at: http:// www.federalreser ve.gov/pubs/ mortgage/mortb_1.htm.

For more information about interestonly mortgages and option-payment ARMs, consider visiting the Federal Deposit Insurance Corporation's website on these mortgage products at: http://www. fdic. gov/consumers/consu mer/interest-only/in dex.html.

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