Your mortgage will likely be the largest monthly payment you have for the next 15 to 30 years, so you want to be happy with it. Some home buyers, especially first-time buyers, get so caught up in the excitement of finding a new home that they forget to make sure the mortgage they agreed to is right for them. The amount may seem troublesome, but they shrug it off or decide to worry about it later, only to end up struggling to make their mortgage payments. By taking the time now to make sure the mortgage you’ve chosen is right, you can save yourself from years of stress.
In this section, we’ll review everything you need to know about choosing the right mortgage, including:
- How to be sure you’re comfortable with the mortgage
- How to avoid common mortgage pitfalls and handle potential issues
- Making your intent to proceed with the loan known
Questions to Ask When Choosing a Mortgage
Hopefully, you have several pre-approval letters to choose from. Perhaps you already know which mortgage you prefer, or maybe you’re second-guessing which option is best. Either way, take a moment and ask yourself the following questions:
Will I be able to repay this loan?
How comfortable are you with the amount you’re borrowing? What if you lose your job? Do you have enough resources to fall back on? If you’re buying the home with someone else, would that person be able to cover the mortgage alone if something were to happen to you, and vice versa? Take a moment to think about the loan amount and if it’s truly right for you. You may decide to go with a less expensive house once you think about the mortgage amount and what it could mean in the long term.
Am I comfortable with the monthly payment?
Now that you thought about the loan amount as a whole, let’s break it down and examine your monthly payments. Will they fit easily into your current budget, or will it be a struggle every month to cover the mortgage and all your other bills? Will you be forced to give up things you enjoy so you can make your payments? Even though the bank says you can afford a certain amount, the bank doesn’t know your lifestyle. Make sure you’ve reviewed your budget carefully. Tally all your expenses and subtract them from your total household income. If the mortgage payment is less than 28 percent of your income, you should be able to make the payment without struggling each month.
Am I confident with the lender?
Make sure you’re confident in your chosen lender. Do you believe they’re working to secure you the best rate and terms for your loan? If not, you might want to take a step back, do some research, and consider other lenders.
Are there any risky features in my loan?
Look over your mortgage agreement carefully. Look for any features that could be harmful for you, such as prepayment penalties or balloon payments.
Will my loan payment change or remain the same?
Fixed-rate loans give buyers a sense of security because the payment is the same every month for the life of the loan. A fixed-rate loan makes it easy to fit your mortgage into your budget because the payment never changes. Other mortgages, like adjustable rate loans, have payments that fluctuate. With these mortgages, the principle remains the same but the interest rate changes depending on the national rate. If you aren’t comfortable with a payment that could rise or fall depending on the interest rate, you might not want an adjustable rate mortgage.
Avoiding Common Mortgage Pitfalls
It’s exciting to buy a home, but it also comes with some risks. To make sure all goes as planned, you’ll want to be aware of potential problems. Here are some common issues to avoid when buying a new home:
- Signing partially filled or blank documents. Never sign any blank document or any document that isn’t properly filled out with the agreed-upon terms. Once your signature is on the page, an unscrupulous lender could fill in the blanks with whatever information they want. Make sure you only sign completed documents, even if you trust the lender.
- Buying more home than you can afford. It’s an easy trap to fall into. You see a house that dazzles you and suddenly no other house will do. Yes, you were pre-approved for that amount, but just because the lender says you qualify for a $500,000 loan, it doesn’t mean you can afford a $500,000 house. Find a house you can comfortably afford and don’t take out the highest loan amount possible, or you may find yourself in financial trouble.
- Thinking about refinancing in the future, rather than on getting the best loan now. One way home buyers convince themselves to buy a home at a higher rate is by thinking they can simply refinance the home at a lower rate in the future. This isn’t always true. Instead of thinking about refinancing when you’re buying a home, focus on getting the best loan you can right now. Refinancing isn’t cheap and there’s no guarantee interest rates will go down.
- Trying to enhance your application with false information. Some applicants believe they can improve their loan approval odds by enhancing their applications with false information. Examples of this include claiming a higher income than you have or attempting to hide information that might be considered negative. Including false information on your application could be considered mortgage fraud, so complete your application truthfully.
Understanding Federal Fair Housing Laws
In most cases, your search for the right mortgage ends happily with you in your dream home. But unscrupulous lenders are out there, and you should know what to do if you encounter one. This could be a lender providing illegitimate programs or a predatory lender who tries to impose unfair terms like high fees or interest rates. You could also encounter discrimination.
While you might think you’ll know housing discrimination when you encounter it, discrimination is often subtle. Lenders should make loan decisions based on your creditworthiness only. Treating borrowers differently, like using different qualification criteria or setting different income standards because of the borrower’s race, color, religion, sex, disability, familial status, or national origin, is considered discrimination.
If you believe you’ve encountered discrimination, predatory practices, or illegitimate programs, you can file a complaint with the following agencies:
- The Better Business Bureau
- Your state regulatory board
- Your state’s attorney general office
- The US Department of Housing and Urban Development (HUD)
- The Federal Reserve (if the lender is a bank)
Making Known Your Intent to Proceed with the Loan
Before your mortgage lender will move forward with the loan approval process, you must first inform the lender of your “intent to proceed with the loan.” This is done by signing and submitting the Notice of Intent to Proceed with Loan Application (NIPLA) document. By signing this document, you accept the terms and fees listed in the Good Faith Estimate (GFE) and permit the lender to move forward with the approval process. Be aware that you’ll be charged the fees related to your loan processing once this is signed and submitted.