The Most Home For Your Money - selecting the best mortgage

Black Enterprise, July, 2000 by Donald Jay Korn

The Johnsons were able to go from a $48,000 loan at 13% to a $51,000 loan at 8.5%; they put the extra $3,000 toward property taxes and home insurance. Their current payment is under $500 a month, about $40 lower than the old one. "This means a huge savings for them," says Michelle Hall, a home mortgage consultant with Wells Fargo Home Mortgage in Indianapolis. "Now they'll be able to build equity in their home. They took a 30-year fixed mortgage, which protects them from having their rate change every year or so. Therefore, they have protection against rising mortgage rates. If rates drop, they'll be able to refinance.

"What's more," says Damond, "with our new loan, we make one monthly payment that also includes property tax and home owner's insurance, so it's much more convenient." Regarding home owner's insurance, most lenders require private mortgage insurance until you've built up 20% equity in your home. In the past, lenders were reluctant to drop this portion of the monthly payment, but a new bill calls for the automatic cancellation of private mortgage insurance once homeowners hit the 22% equity mark.

STEP FOUR: YOU HAVE THE TECHNOLOGY. USE IT.

As part of shopping for your loan, go online to get an idea of the current mortgage climate. Stan Carter, for example, did some preliminary research on the Internet, starting with the U.S. Department of Housing and Urban Development's Website, which referred him to the sites of various lenders. "I shopped around and saw that Countrywide seemed to have a good mix of rates and loans," he says. "Then I contacted the company's local office, where the people helped us with all the paperwork."

"There are some great tools and mortgage calculators on the Net," says Gumbinger. "You can get an idea of how large your monthly payments will be with different loan amounts or interest rates" (see sidebar for suggestions).

What about getting a mortgage online? If you're a home buyer, especially a first-time home buyer, "the Net can be very confusing, and there's more of a chance of falling victim to some scheme or having your privacy invaded," says Gumbinger. For example, beware of sites that ask for up-front processing fees. "Use the Net for preliminary research, then go find a lender that will provide the personal service you want. The information you've gotten on the Internet can help you make sure you get a competitive rate."

However, says Gumbinger, "If you want to refinance a loan, you can rely on the Internet. Be ruthless. Search the entire Net for the lowest rate." If there are no cumbersome fees, generally you can refinance whenever rates drop. Otherwise, do the math: How much are the costs? How much will you save each month? Do you plan to keep the loan long enough to make refinancing worthwhile?

STEP FIVE: LINE UP A LENDER

Once you've done your due diligence, contact potential lenders to become prequalified or preapproved for a loan, as Brown-Postell did. To do so, you'll have to supply your financial data before you have a specific purchase in mind. "Preapproval is different from prequalification," says Perry. "Someone who's prequalified has a good idea of how much money can be borrowed and how much can be spent on a home. Someone who's preapproved is further along in the process. Financial information has been verified, so your loan can be ready faster. Some realtors and sellers prefer to work with buyers whose loans are preapproved."