5 Things to Do When Shopping for a Mortgage

Buying a home can be a great thing and there are five critical things everyone should do when shopping for a mortgage.

Feb 23, 2014 at 11:00AM


Photo: Jim

With the American economy recovering and the housing market rebounding, many Americans have begun to consider if they should purchase a new home. Here are five critical steps every individual should take as they move toward obtaining a mortgage to buy a home.

1. Understand what you can afford
As with any major financial decision, the first step in the process should be a careful review of what is within the range of affordability. Buying a home can be a financial maneuver that makes a ton of financial and personal sense and can be better than renting. Yet taking the time to assess one's personal financial situation is critical before the process starts.

Images Of Money

Source: Flickr / Images of Money.

Remember, a mortgage payment also does not involve simply what is paid to the bank, but also property taxes and insurance.

Plus, the homeowner is responsible for any maintenance expenses and utilities. Once all of those are factored together and affordability is gauged, be sure to evaluate personal savings to ensure a dramatic shift in personal finances -- through a job loss or something else -- wouldn't result in disastrous consequences.

Buying a home can be a wonderful step an individual or a family makes, but as with any financial decision, it should also be approached with care and consideration of both the seen and possibly unseen costs.


Source: Flickr / 401(K) 2013.

2. Do your research
After careful consideration of one's personal financial situation, take the time to understand and research the various types of loan options that are available. Whether it be a 15- or 30-year mortgage, one with a fixed or adjustable rate, upfront or delayed fees, possible points, or even something like private mortgage insurance, there are a variety of things that aren't in everyday language associated with mortgages that should be known by borrowers.

Yet it shouldn't simply be a matter of finding what those things are, but ultimately the costs and benefits.

For example, today's rates on a $200,000 mortgage could result in the monthly payment on a 15-year mortgage being roughly $400 higher than a 30-year. However, it would result in more than $100,000 in interest savings over the life of the loan. Understanding which would be better is an individual decision, but one that must be considered.

3. Shop around
Mortgages are often the biggest singular financial decision people make, but all too often people will walk into their local bank branch and walk out with a mortgage without ever shopping around to find the best deal out there. Take the time to sit down with multiple lenders, whether they are giant banks or local credit unions, to have a variety of different options.

Also be open about your shopping around, as it may incentivize the broker or lender to provide you with a better rate to ensure you have the best deal and will ultimately chose them. Look around for different options, and don't be afraid to negotiate.

By Images

Source: Flickr / Images of Money.

4. Evaluate the true cost
On the surface, one loan may appear to be the most appealing, but without careful consideration of the final cost of each, it may not be the best option.

For example, you could be offered a lower rate by one lender, but they could charge more fees, resulting in a higher cost. Or perhaps, one may allow you to pay upfront points to reduce the mortgage rate, and while it may cost more up front, it could ultimately make the most financial sense over the long term.

With all the deals in hand, compare them side by side to get a true picture of what makes the most financial sense, and go ahead choosing that one.

5. Don't be afraid to ask for help
Mortgages can seem complex and daunting, and at the same time, are a monumental commitment. Seek out trusted advisors, lawyers, or friends who can readily answer any questions or concerns you may have. Ensure they don't care one way or the next where the mortgage is from, and are looking out in your best interest. That will provide a sense of relief and clarity as the final decision is ultimately made.

Owning a home can be a great thing, and as with any financial decision, you can make the right decision on what mortgage to pursue with a little hard work and careful consideration. 

From mortgages to investments
Making the right decision on which mortgage to get is critical, and so too is the one you make one the top stock to buy right now. Because the thing is, there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers