What you need to know to select the right Mortgage Lender, part 1

1. Interest Rate

This is the most obvious one and most important, but for absolute beginners, you target is to get the lowest possible interest rate. As of this point, on May 12, 2011, the lowest one I am aware of is prime-0.95%. Unless if Fixed Rate is lower than prime which is at 3%, I do NOT recommend going with Fixed Rate.

Objective: Get the lowest possible interest rate.

2. Mortgage Set Up Cost

There are many things that needs to be done to approved for a mortgage. However, most bank are willing to pay for these cost. Most brokers, in fact, all mortgage brokers, are not. The following are two main approval fees that you should know:

Appraisal Fee:

Cost: $200-$400, depending on house size.
A home appraisal is an estimate of the sale value of the home. It is often based on similar homes sold in the same neighbourhood over the past 90 days. Generally, an authorized apprasier will come into the house for 10 minutes and take some pictures of the rooms. You need to make sure all your rooms are accessible. The appraiser will then inform the mortgage lender the appraised value of the house. If this appraised value is lower than the price you are looking to buy it for, then the mortgage will not get approved. (For the appraiser's own legal safety, the appraiser will never appraise the value higher than the buying price. The most the appraiser will do, is appraise at the buying price. Just enough to get the mortgage approved, but never more to prevent getingt sued if the house value turns out to be lower.)

Not only is it necessary to get an appraisal to get your mortgage approved, an appraisal will inform you as to whether the house is worth buying. Thus, if your lender did not approve the house because the appraiser appraised it below the price you bought it, then simply don't buy the house! The house is overpriced.

Your target should be $200 - $250 or the mortgage lender should cover this cost. Some broker will attempt to charge over $400. So be careful!

Legal Fees:

Cost: $800 - $1200, depending on house size.
Lawyers are needs in order to ensure a smooth transaction to the new property owner.

Your target should be $800, flat rate. Some lawyers charge by the hour. I suggest using the flat rate to not get over charge or cheated. The $800 should cover everything including title search, stamps, and all materials necessary. Yes, lawyers can charge $5 just for a stamp. However, there are those lawyers who will attempt to charge too much. So once again, be careful! Although rare, some lenders may absorb this fee as well.

(Aside of these two fees, there are additional fees you need to cover depending on whether you are looking to break out of your mortgage, buy a new house or just renew or mortgage. For the purpose of this article, I will reveal the other fees in a future article)

Objective: Pay no more than $1000-$1200 for these two fees depending on your house size. Or the lender cover the cost.

3. Mortgage Commitmentitment

A lender may let you commit up to 10 years for a mortgage. Don't be stupid. You objective should have the shortest commitment. The longer the commitment, the more expensive it will get if you ever want to change your mortgage or break out of it.

For a variable rate, you wil generally find lenders expect 5 years. Although I have seen three. For Fixed rate, the shorter commitment also gives you the lower interest rate. If you have to go Fixed, go with the shortest commitment with the lowest interest rate which is usually one year.

Objective: Find the shortest possible commitment. For vairable rates, five years. For Fixed Rate, one year.

Continue to part 2

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