What Type of Mortgage is Right for You

Questions to Ask Yourself and Your Potential Sarasota Florida Lender

    If you're wondering which kind of mortgage is best for the Sarasota real estate property you wish to buy, the answer is there is no single best answer. Deciding which type of mortgage best meets your needs can be difficult. There are many types of loans, different terms and different lengths. Your choice is important and worth time and effort to research. Research before choosing your mortgage can save you thousands of dollars over the length of time you own your Sarasota Florida home or investment property.

    There are several components of a mortgage loan that need to be understood and analyzed. You must weigh each component. Your answers to the following questions will help you determine the type of mortgage and the mortgage lender that best fits your circumstances and plans.

1) How long do you plan to stay in this home?

• Less than 5 years
• 5 - 10 years
• The full 15 or 30 years of a conventional mortgage

    The length of time you plan to remain in the home in Sarasota Florida will play a part in determining which type of loan to apply for. If you plan to be in the home for 5 years or less, you may want to reconsider buying a home at all at this point. But, if your personal situation requires that you buy a home, you may want an adjustable rate mortgage or ARM. If you intend on staying longer than 5 years, a fixed rate mortgage may be a better choice depending on your "risk tolerance."

2) How much risk are you willing to accept ?

    If you're the type person who needs to know exactly what you will be paying each month for the term of the mortgage, a fixed rate mortgage will ease your anxiety. However, a fixed rate loan will also most likely cost you a higher interest rate. If you're willing to take some risk of fluctuation in your interest rate, you may be able to obtain a lower interest rate (at least initially) with an adjustable mortgage.

3) What is the outlook for your income over time?

    Do you anticipate a gradual or dramatic increase in your income over the next few years? If you expect to see a substantial increase in your earning power over the next few years, a graduated payment mortgage may be best. If, on the other hand, you expect your income to remain relatively stable, perhaps you may be more comfortable with a fixed rate mortgage so you can predict more accurately what your costs will be in future years.

4) How much cash do you have for upfront costs?

    If you have the resources, you may want to make a larger down payment that will reduce your monthly payment. For example, if you can afford a 20% down payment, most lenders won't insist on Mortgage Insurance and that will reduce your monthly cost or allow you to buy more home for the same monthly payment. Keep two things in mind, though. First, you'll need cash beyond your down payment for closing costs and fees. Be sure to ask any lender you contact to estimate the total cost you'll have to pay at closing before making a decision on how big a down payment you're prepared to make. Secondly, remember that you're going to have to spend money moving into and furnishing your new home, so keep some money aside for those post-closing costs.

    In addition to choosing a type of loan, you must also consider which lender to use. Here again, several factors will influence your decision.

1) The Annual Percentage Rate or (APR) - The Real Total Cost of the Loan

    This is the best way to make an "apples-to-apples" comparison among lenders' mortgage rate quotes. The APR reflects the cost of credit on a yearly rate including any and all points and fees imposed by the lender over and above the advertised simple interest rate.

    Beware of "hidden fees."  As you move from one potential mortgage source to another, ask the same questions. If one firm mentions a certain fee, check back with the others you've spoken with. Do they not charge that fee or did they just not mention it. As with everything else, there are reputable and not-so-reputable mortgage lenders. Realize also that it is possible a lender did mention a certain fee but you just didn't make a note of it.

2) The Interest Rate Commitment Period

    Be sure to ask prospective lenders how long they will guarantee the interest rate quoted to you and get it in writing. As with any part of a real estate transaction, if it isn’t in writing it doesn’t exist.

4) Final Loan Approval and Funding Outlook

    The expected time it will take your mortgage provider to give final approval to your mortgage and provide funding also needs to be part of your comparison of potential mortgage providers. When you sign a purchase offer, you'll specify a time period within which you'll get mortgage approval. Tell prospective mortgage providers you need an honest estimate of the amount of time it will take for final approval and funding. You don’t want to lose the "home of your dreams" because your lender took weeks longer than expected for final approval and funding.

    The choice of a source for your mortgage is important.  The old saw about there being "lots of fish in the sea" applies to mortgage lenders. There are enough reputable lenders out there for you to find one you can feel comfortable with. Take your time and find the mortgage and the Sarasota Florida mortgage source that best fits the your needs.