Mortgage Shopping 101: First Things First

Of all the things you could go shopping for, a mortgage is probably the one of the most important. Because if you pick the wrong rate, it could cost you for decades. Today Money Talks News starts a special series that will save you lots of money and lots of time when a new mortgage is in your future.

“Very confusing. Terminology was confusing, yes. And the paperwork. Was just paperwork, after paperwork, after paperwork.”
-Jeff Pharr, First Time Homebuyer

Like many first-time home buyers, Jeff Pharr wasn’t experienced with mortgages. But he knew how important his mortgage was… so long before he started house-hunting, he started polishing his credit score.

“The first thing I needed to get my credit in shape. So I took about a year, year and a half to get it up to the goal that I wanted.”
-Jeff Pharr, First Time Homebuyer

Really smart. Because a higher credit score is worth thousands of dollars. Borrow $150,000 on a 30 year loan and pay 6%, you’ll ultimately pay $173,000 in interest. But if a crummy score only qualifies you for a 7% loan, you’ll pay 209,000: 36 thousand more.

So step one in finding the right mortgage? Make sure your credit score is as high as you can get it.

Next step? Decide what kind of mortgage you want. 15 or 30 year? Variable, Fixed or a combination?

“I was a little scared of a variable: I mean, that’s part of the reason that we’re in the crisis that we are now.”
-Jeff Pharr, First Time Homebuyer

Jeff’s right… but how long you plan on keeping the house… as well as what you can afford… should also help determines which is best.

Now once your credit is spotless, and you know the kind of loan you want, it’s time to approach lenders and get pre-approved. So when you find the house you want, you’re going to be able to borrow the money for it. But how do you find the right lender? That will be in our next report.