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Artisan Mortgage Tips

1. First decide between a fixed and a variable rate

Variable rate mortgage loans generally have a low initial rate, which will remain fixed for a period of time and then change periodically. For example a 5/1 ARM will have a fixed rate for the first 5 years of the loan and then the rate will change each year thereafter. A fixed rate mortgage loan will have the same rate, and payment, throughout the life of the mortgage loan.

Variable rate loans are good choices if you are not planning on living in the home for a long time, or if interest rates are currently high. Fixed rate mortgage loans are good choices if you plan to live in the home a long time, or rates are currently low.

2. Decide how much you want to put down

The more money you have for a down payment, the lower your monthly payment and loan balance will be. Many lenders will require that you put down a minimum of 3% as a down payment, though there are mortgage loan programs that will allow for smaller down payments in special circumstances.

If you are able to afford 20% of the purchase price for a mortgage down payment, you will generally avoid paying private mortgage insurance (PMI). This insurance will raise your mortgage monthly payment and is not considered tax deductible. With a 20% down payment, you may also qualify for a lower interest rate. Be sure to ask your lender if your rate could be reduced with a larger mortgage down payment.

3. Understand the fees

The only way to get the complete picture on mortgage fees is through the Good Faith Estimate (GFE). Make sure you ask your lender for one of these before you commit to a mortgage loan. It will show you all of the fees and pre-paid expenses that you will need to pay at mortgage loan closing.

Combining fees and interest rates to make the best decision is difficult, but there is one special number that makes it easy, the Annual Percentage Rate (APR). The APR combines all of the fees and interest expense over the life of the loan into one number. Generally a mortgage loan with a lower APR is the better mortgage loan, though sometimes the APR for variable rate mortgages will not represent the likely cost of the mortgage loan.

4. Pick your points

Most lenders will allow you to pay extra points in order to decrease the interest rate on your mortgage loan. Generally a point is equal to 1% of your loan balance, or $1,000 for a $100,000 mortgage loan.

When you are thinking about paying points, you need to consider how long you plan to live in the home. If paying 1 point or $1,000 reduces your monthly payment from $675 per month to $625 per month, you will need to stay in your home for 20 months to earn back that $1,000 you've paid up front.

5. Lock your rate

The interest rate is not yours until you've locked your rate. Mortgage rates change every day, sometimes more than once, and until you've told your lender to lock the rate on your mortgage loan your interest rate will change too.

Deciding when to lock can be tricky. If you are happy with the current rate, then you should probably lock it. That will protect you in case interest rates rise. If you want the rate to be lower, you can hold off, but your rate might go up as well as go down while you wait.

When you do lock, make sure to get a written confirmation from your lender that the rate is locked. This confirmation should contain the rate and expiration date of the lock. This will ensure there are no misunderstandings about the details of the mortgage loan at a later date.

Take the next step to finding your mortgage loan and contact Artisan Mortgage professionals!