Financing Your New Home

As you dream of owning a brand new home, you are also probably thinking of how you are going to finance for it. Right after you decide on the kind of neighbourhood that you want to live in and the type of property that you want own, you must also decide on the budget that you can allocate for your home. In fact it is a good idea to pre-qualify for your loan and finalize the financing options before you even start looking for homes. There is nothing more frustrating than having to let go of a property that you have your heart set on, only because you find out too late that it is way out of your financial league.

Pre-Qualifying for Financing

The best thing about pre-qualifying for a home loan is that you get to establish your budget, which can save you a great deal of time and frustration. If you know what you can spend, you will look only for property within that limit. Remember that taxes, closing costs, utilities and insurance can also affect your budget.

Whatever your budget is, financing solutions are available. There are 15 and 30 year fixed mortgages, Adjustable Rate Mortgages and even government programs like Fannie Mae (Federal National Mortgage Association) to help you.

Obtain the Best Mortgage

Shop around for the best mortgage, do not settle on the first one that you find. A buyer's agent or a mortgage broker can assist you in securing the best financing deal. A mortgage is just a product that the lender sells you, so just like any other product the prices and terms maybe negotiable. A mortgage broker is best placed to help you here because they deal with a large number of lenders and obviously have more bargaining power because they deal on a whole sale basis. When they approach a lender, they have a fair number of prospective buyers under their arm, so the lender may offer them the best rates and deals that are not advertised to the general public.

Home loans can be availed from different types of lenders - banks, mortgage companies and credit unions. Different lenders quote different prices and offer different products. A broker will have access to a big basket of loan products out of which you can choose the best one. A broker's compensation could be a percentage commission, points paid at closing or as an add-on to your interest rate. Talk to the broker to find out how he or she works. You could even approach a few brokers to select the one whose fee and work style you are comfortable with.

The Cost

An average home buyer may make the mistake of thinking that the monthly payment amount and the interest rate are all the information that they need to know. Wrong. You also need to know about the loan amount, loan term and the type of loan and interest. Find out whether the interest rate is "fixed" or "adjustable." When interest rates for adjustable rate loans go up, monthly payments also generally increase. You also need to know about the annual percentage rate (APR) of the loan which takes into account the interest rate, points, broker fees, and any other credit charges that you may be required to pay, expressed as a yearly rate.

Points are fees paid to the lender or the broker and are generally linked to the interest rate. The higher the points, the lower the interest. Home loans also involve many fees, like loan origination fees, broker fees and closing costs. Many of these fees are negotiable with the broker or lender. Application and appraisal fees are paid when you apply for a loan and others are paid at closing. "No cost" loans are also available at higher rates. The lender will also require you to make a down payment which could be 5 - 20% of the home's purchase price.

Select the Best Deal

Negotiate the best deal with the lenders or the brokers. They may offer different prices for the same loan terms to different consumers who qualify equally for the loan. This is because loan officers and brokers are often allowed to keep this difference as extra compensation.

Get a lock-in from the lender once you are satisfied with the terms. If the interest rates fluctuate while processing your loan, lock-ins can help you keep the earlier rate even when the interest rates shoot up. However, if the rates fall you may stand to lose unless you are able to re-negotiate.