How to Shop For Your Mortgage Loan-Part I

In speaking with clients and potential clients,
I find that borrowers' approaches to researching
their mortgage alternatives range from a well-
directed process to a sincere, but ineffective
procedure.

Some of these borrowers are willing to accept
guidance to help them achieve their goals.
Others forge ahead stubbornly, thinking they
are on the right path, and may reach their goals
less by design than by good fortune.

Please use the following outline as a way to conduct
your mortgage research. Also, please understand
that these steps are fluid in nature, and that you
will pick up important information throughout the
process. Don't think that you have to complete
one step before starting another.

1. Know your outcome.

I often ask my clients, "If things go exactly as you
would like, what would that result look like?"

With all of the details that they have to consider,
they may have never thought about that before.

But, it is important to know what the goals are.
Their outcome that they define can be aided by
answering these types of questions:

How long will you be owning this home? (Their
answers may be influenced by being a first-time
buyer, a move-up buyer, or settling in for the
bulk of their adult lives. Also, how long their
children will be in a particular school district
often helps decide this question. Career plans
come into play as well.)

How long would you anticipate having this mortgage
in place? (This may be a much different question
than the first one. They may need an initial home
loan that gives them immediate benefits but
is not designed for the long-term. They may be
anticipating additional funds that will allow them
to pay down, or pay off, the loan after it is created.)

What is your risk tolerance? (Would you rather
consider loans that will never change, but whose
interest rate and payments may be slightly higher,
or consider loans that provide a lesser element of
stability and that offer lower rates and payments.)

How much of your available funds do you want to
invest? (Some people want to put as much down
payment as possible to keep their loan balance and
payments low. Others want to put little down, keep
their funds more liquid, and leverage off the use
of the lender's funds.)

How much do you want to budget for the housing
expense: mortgage payment, property taxes, insurance
and/or homeowner's fees? (There are many times that
I may be able to obtain loan approval for a higher
monthly payment than the borrower is comfortable with.
I never want to over-obligate my client, and this
question allows us to get the topic on the table so
we can have a frank discussion.)

As you might guess, the client's perfect outcome may
not be compatible with lending guidelines.

But I can tell you from my experience, that it is very
gratifying to hit the client's target! And when we
can't, we both know where the adjustments are being
made and why they are necessary or recommended.

2. Be realistic.

As you talk with the various lenders and gather
information, you are going to be getting some feedback
as to what is possible for your situation.

Your better loan representatives will be able to
discuss lender guidelines and educate you as to what
is approvable in today's market.

In early 2007, we were in an entirely different
lending environment. Loans approaching 100% of the
value of the home, or that allowed for approval
without verification of income or assets, or
certain more exotic loan products were readily
available then. But not now.

If you are hearing of your neighbor's or co-worker's
loan experience, it's important to understand that
each borrower's profile is unique, and it is to be
assessed in light of the lending guidelines at the
time.

Even now, we are experiencing something of a moving
target with regard to guidelines. As investors
have left the market, lenders have had to change
the guidelines for the types of loans that they
will originate.

Sometimes, this happens in the middle of a trans-
action we are processing for a client. We can do
our research, get the loan request started, and
by the time we are ready to submit the loan to the
lender, the guidelines have changed.

If you had decided to apply with a direct lender and
this happened, you would have to start all over
again with a new lender, possibly having to pay
for additional appraisals and credit reports.

If you were with a mortgage broker like me, your
application, appraisal and credit report can be
directed to a different lender with compatible
guidelines to your situation.

It is important to remember that your loan application
is not a redemption coupon, but it is a request
for the lender to consider and hopefully approve.

It is always great when the process goes smoothly and
there are no big surprises. But, be prepared for
some obstacles to surface and work with people that
you know are giving you information that is researched
to the best of their abilities.

To be continued: Choosing a Lender, Deciding on a Loan
Product, and Assessing Rates and Costs.