Make Sure You Understand The Home Loan Process Before You Borrow

By Author: Scott Staudt
Total Articles: 91
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The home loan market is no longer simple. When you are preparing to take out a mortgage to purchase a home, there are a lot of factors that you have to understand and a lot of decisions you have to make.

Understanding the types of choices you will have to make will make it a lot easier to obtain the best type of home loan for your circumstances.

ARMs and FRMs are offered to borrowers today. An FRM is a fixed rate home loan and an ARM is an adjustable rate home loan.

If you decide upon an FRM, which type of FRM do you want, since they are a number of variations of fixed rate mortgages?

If you decide upon an ARM, which kind of ARM is for you? There should almost be a college course in the comprehension of all of the different kinds of ARMS.

You may be given the choice of an interest only mortgage, where you only pay interest and no principal, but these are rapidly disappearing from the scene in tight credit situations.

Now you need to choose whether you want to pay points, and if so, how many? There are circumstances where this is the best choice, but you have to try to forecast how ...
... long you will be living in the home to make the right decision.

One of the only decisions that is not a new one is how much of a down payment should be made. Often, this decision makes itself, since borrowers have only been able to save a certain amount, but if you have more than the minimum for a deposit, you have to decide whether to deposit more, or invest it elsewhere.

Another option you may be given is a prepayment clause. If you feel you want the privilege to pay the mortgage off earlier, you may decide to choose this option.

Next choice is concerning a lock in rate. Locking in a rate is usually a good idea, unless the rates decrease after you have fixed your rate. You will have to pay the increased rate, even if better rates are prevalent in the loan market. There is usually a way to opt out of a lock in rate, but the lender will charge a fee for this. Borrowers who either feel rates are going to increase, or don't want to be in the prositon of forecasting rates, should take the lock in option.

Before you start to shop for a home loan, look into all of these choices and have a good idea of which will work the best in your situation. Understanding what your lender is talking about will make a big difference in the mortgage you choose.
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