When choosing a lender, you should always do your homework and shop around. I would be happy to provide you with a referral, but ask your friends too!
Also, check out the company you're doing business with. Has it been around for a while? Are there any complaints against the company? Can the lender give you any references?
When you have settled on a lender and are ready to pick out the mortgage product that best fits your financial needs, keep in mind that all lenders offer a variety of home financing options. Most loan rates will be similar to the current interest rates; however, differences in how a loan is structured can result in large savings or costs to you when buying a home. Loans may differ in such items as term (length of the loan), prepayment options or penalties, processing fees, no-credit fees and mortgage insurance considerations.
Most mortgages are offered for terms of 15 or 30 years — other terms are available under some circumstances. Your monthly payment changes depend on the length of the mortgage. Typically, the longer the term, the lower the monthly payments and the more cash you'll have for other expenses. With a shorter term, you'll have higher monthly payments, but you'll save on interest costs over the life of the loan.
A qualified lender will work with you to find the best choice, but if you need help, here are a few of the basics:
Fixed-Rate Mortgages offer the same interest rate, monthly principal and interest payments throughout the entire term of the loan. This type is typically the most popular because it offers stability and predictable monthly payments. It's best for those of you who plan to stay in your home for a long time.
Adjustable-Rate Mortgages (ARMs) feature an interest rate that periodically adjusts with changing market rates. The ARM often offers a low beginning interest rate as a "teaser." However, this rate will go up after a certain time. ARMs are best for people who plan to move or refinance in a few years or for buyers who know their income will rise in the future. ARMs seem to be decreasing in popularity. New ARMs dropped to a 25% market share late last year, according to Freddie Mac's annual ARM survey. That's down from a high of 33% in 2004.
In the past, ARM rates were consistently and considerably lower than the 30-year fixed-rate products, which made them very appealing. But now, the fixed-rate and ARM loan products are fairly close in rates, so buyers are shying away from them and locking in with a permanent fixed-rate loan.
Balloon Mortgages are offered for short terms — usually five or seven years. They have low, monthly payments followed by a balloon payment requiring repayment of the entire balance at the end of the term. The monthly payments are low because the interest rate is generally lower than a fixed-rate mortgage and payments are amortized over 30 years. This type of loan may be appealing if you are trying to get started in a new home, but you must be sure you will be able to make the final balloon payment.
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