Mortgage-shopping? Here are Suze Orman's top 3 tips for finding the right one
Getting a mortgage loan that's right for you takes some effort.
Shopping around for the best loan rates and terms is important before you do any borrowing. But it's especially crucial you put in the work to find a loan with the best terms when you're taking out a home mortgage. That's because chances are good you'll be borrowing a lot of money and repaying it over many decades.
Unfortunately, finding the perfect mortgage can be easier said than done because there are so many different lenders and kinds of loans you can choose from. The good news is, identifying the right loan is easier if you follow finance expert Suze Orman's three-step process.
Here are the steps Orman says you should take when looking for a home loan.
1. Don’t let the lender set your budget
The first step Orman suggests taking is to decide for yourself how large of a mortgage loan fits your budget.
She warns you should make your own decisions about how much to borrow rather than getting sucked in by mortgage lenders who may offer you a larger loan than you're comfortable with.
Mortgage lenders typically want to give you the biggest loan they think you'll be able to afford, as this maximizes their profit. While it's tempting to take the extra money and buy a more expensive home, the fact is a large mortgage payment could interfere with other financial goals you have.
If you take the time to decide what fits your budget – while also accomplishing other tasks, such as saving for retirement – you're much less likely to be talked into borrowing a big amount of money that leaves you house poor.
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2. Shop around with different financial institutions
Orman warns against assuming your current bank will always provide the best deal on a mortgage loan.
Instead of sticking with the status quo and just applying for your home loan with the financial institution you're already doing business with, Orman suggests applying with at least three different lenders. She also advises that you look at community banks and credit unions.
This is some of her most important advice, as there can be wide variation in rates and terms among mortgage lenders. Even a small increase in your mortgage rate could add up to tens of thousands in extra interest over the life of the loan. You don't want to settle for a bad deal on a mortgage just because you don't realize you could do better.
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3. Work with a lender who can get the deal done
Finally, Orman suggests looking at how effective different lenders are at getting loans closed when you choose which mortgage to apply for.
As she explains, many lenders can be slow to get a loan to closing. This can sometimes end up costing you a home if the seller is looking for a quick sale or if you exceed the time allowed to secure financing based on your purchase agreement.
Orman suggests asking real estate agents which lenders tend to be efficient – and don't tend to cause problems – during the closing process.
By following these three tips, you can hopefully find an affordable loan at a low rate that closes quickly so you will end up happy with your home purchase.
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