The Top 5 Things You Must Know Before Applying for a Mortgage
By Rob Sallay
You’ve been thinking about buying your
own home for quite a long time, and now you’re ready to
take the plunge. You’ve been saving money for a down payment,
and you know the next step is preparing to apply for a mortgage.
But where do you start?
Here are the top 5 things you need to know before
approaching a mortgage lender.
1. Understand Your Options
All mortgages are not created equal. There are
several different types, which vary based on interest rates and
• With a fixed-rate mortgage, your monthly
payments remain the same during the entire length of the mortgage.
There will be no variations in monthly payments, regardless of
changes in interest rates and inflation.
• With an adjustable-rate mortgage, you
will often receive a lower initial interest rate, but your monthly
payment amount can rise and fall as interest rates fluctuate (within
certain caps or limits).
• With a balloon or reset mortgage, you
once again may be offered a low interest rate, but it will hold
for a limited time. After that, the balance of the mortgage will
be due, or you will need to refinance.
2. Become a Rate Watcher
The state of the economy influences interest
rates, which ebb and flow on a regular basis.
Your daily newspaper tracks these rates, so stay
current by watching whether rates are rising, falling or remaining
It behooves you to become as educated as possible
about how these rates will affect your mortgage—and to see
if you want to postpone applying for one until rates drop.
3. Get Pre-Approved
Consider getting pre-approved for a mortgage,
says Frank Nothaft, PhD, vice president and chief economist for
Freddie Mac, the stockholder-owned corporation established by
the United States Congress in 1970 to create a continuous flow
of funds to mortgage lenders in support of homeownership and rental
”A benefit of being pre-approved for a
mortgage loan is that it gives the prospective homebuyer additional
bargaining leverage when competing with other prospective buyers
for a home,” he says. “A home seller may be more likely
to accept an offer from a pre-approved borrower—because
the seller knows the buyer can get a loan—than from another
bidder, who may be exactly the same in financial qualifications
and offer, except that he lacks the pre-approval.”
4. Consider Making a Higher Down Payment
Making a higher down payment on a home will reduce
your mortgage, but there are definite pros and cons, according
to Dr. Nothaft.
”The pro of putting down more money is
that you can often obtain lower-cost financing,” he says.
“High down-payment loans—that is, low loan-to-value
ratio—represent less default risk to a lender, and are safer.
That may translate into a lower interest rate or obviate the need
for mortgage loan insurance.
“The con,” he continues, “is
that it may result in the borrower having to delay a home purchase,
because the borrower does not have enough liquid assets to make
a larger down payment. Low down-payment loans are especially important
for first-time home buyers, who typically do not have the financial
wherewithal to make a large down payment.”
5. Select Your Lender Carefully
As in any industry, there are “bad apples”
who ruin the reputations of respectable professionals. In the
mortgage business, these folks are known as “predatory lenders”—individuals
who take advantage of vulnerable consumers. Those most prone to
becoming victims include the ill-informed, the elderly, women,
minorities, low-income buyers and consumers with bad credit.
To avoid becoming “prey,” select
a lender with solid credentials. You can secure a referral from
your bank or credit union, real estate agent, government housing
agency, or friends and relatives who have successfully purchased
Never trust a mortgage offer that arrives via
email, as it likely originated from a spammer.
Mortgage Relief specializes in assisting Australian
families with mortgages by making their monthly repayments more
manageable and decreasing their overall debt and total interest
paid over the life of their mortgage. Mortgage Relief is a mortgage
refinance provider that it part of Australia’s largest Debt
Relief™ organization. Visit Mortgage Relief on the web at
or contact them directly on 1300 789 014.