Shopping for Mortgages
Three considerations when looking for the best deal.
By Kathryn Sheranko

Buying a home is probably the biggest purchase and highest monthly bill most people ever take on. That makes finding the best mortgage possible a task of critical importance. It can seem daunting, but taking the time to understand the basics of mortgage borrowing, coping with the arithmetic of financing and shopping around for the best deal can save you thousands of dollars.

To start, consider the following:

Choosing a Lender
Home loans are available through banks, credit unions and mortgage companies or brokers, and each has something different to offer.

Mortgage experts say prospective homebuyers seeking a mortgage through a bank should first meet with a qualified loan officer who knows the ins and outs of the mortgage process. Shopping around for a rate is important, and loan officers know exactly what banks look at when deciding who is likely to get the best interest rates.

Their best advice is always to be cautious and prudent. Don’t take the answer you want to hear, look at the reality of the transaction.

Another option is to talk to a mortgage broker. Unlike a bank’s loan officer, a mortgage broker will have access to multiple lenders, often from different parts of the country. The sheer variety of lenders might be able to save you money (though a mortgage lender will charge higher closing fees than a bank), but it’s important to find someone reputable.

Gregory Karabetsos, owner of Greater Pittsburgh Home Equity in Peters Township, says customers should check the broker’s background through the Better Business Bureau to ensure a good reputation.

The bottom line is that there’s no right answer to the bank vs. mortgage broker debate. Some experts suggest that people with solid credit and a steady employment history might get the best deal from a bank, while those with lesser credit or are self-employed could do better with a broker. What’s important is to obtain all the information you need, and to make sure you understand the terms of a potential loan and your obligations regarding repayment.

Consider Your Credit Score
A credit score number is a numerical representation of a person’s credit history, how long credit has been issued, balance history and payment history. The figure, which can range from 300 to about 850, is derived using a formula that takes into account factors such as how long you’ve had credit, your balance history, and your payment history.

“The higher your credit score, the more competitive you can be in shopping for a mortgage,” says Mike Hutton, owner of Gold Standard Mortgage in Canonsburg.

“If your score is about 720, you’re in the top tier of applicants and can get the best interest rate.”

To maintain a high credit score, Hutton recommends having three accounts that report to credit bureaus. Credit card balances should be 50 percent or less of your overall credit limit, he says.

Sara Mohsin, owner of Mohsin Mortgage Corp. in South Fayette, says that people should be diligent about making payments on time and not maxing out credit cards.

“People don’t realize that if they have 10 credit cards and one is maxed out but the others aren’t, it could still drop their credit score. Pay off whatever you owe because it’s going to show up,” she says. Hutton suggests that homebuyers check their credit report at least once a year to get a feel for where they stand. Most free credit reports won’t show an actual score, but inaccurate information or fraud can be detected and resolved, he says. However, Hutton warns potential homebuyers that repeated credit checks can also look bad to lenders. One or two checks per year are acceptable, he says.

Bad Credit Does Not Always Mean a Bad Mortgage Rate
Some experts say homebuyers with bad credit should try to resolve their credit problems prior to applying for a mortgage – paying off credit cards can be a big help, as can establishing a solid payment history. But even homebuyers with credit issues can get good mortgage rates.

“A real estate application is like a stool with three legs,” Hutton says, referring to the credit rating and score, the debt-to-income ratio, and the collateral in the house itself.

“Generally they want all three to be in good order, but if you have excellent credit, that can offset a higher debt-toincome ratio or a less-than-perfect house.”

Homebuyers with less-than-perfect credit might consider look into the Federal Housing Administration’s loan program, which makes getting a mortgage easier by insuring the lender against loss. The downside is the FHA limits may prohibit you from buying the house of your dreams, but for first-time buyers FHA loans can are definitely worth a look.

Look at the Big Picture
A home loan is more than just the mortgage rate. When shopping around and comparing offers, consider all the additional fees, closing costs, and other loan terms before making a commitment.

Ask whether the rate is fixed or adjustable. Fixed-rate loans are usually repaid over 15, 20, or 30 years, and the interest rate and the monthly payments stay the same throughout the term.

Adjustable or variable rates usually have a lower initial interest rate but fluctuate over time. When interest rates rise, so do loan payments (the recent credit market crisis was sparked by a rash of adjustable rate loans surging beyond the owners’ ability to pay).

If your loan requires private mortgage insurance, be sure to factor those payments into the total cost.”

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