What kind of borrower are you?

If you are seeking mortgage advice, make sure to do your homework and meet with several reputable mortgage lenders. When it comes to borrowing money, three key factors are important ― approval, affordability, and the type of repayment plan.

What type of borrower you are determines your best approach for obtaining both approval and the most economic repayment plan.  Your strength as a borrower depends on your credit rating, credit history, debt-to-income ratios, employment status, and/or your relationship with other lending institutions.  Knowing what type of borrower you are allows you to seek advice on the most equitable mortgage plan for you.

If you have excellent credit, access to supporting financial documents, low debt-to-income ratios, and you are a long-time employee of one company, you can probably expect approval from nearly any lending institution (bank, broker, internet lender, etc.). You will also be able to obtain the best mortgage rates and loan terms.

If you are self-employed and prefer not to make your income or assets available to a mortgage lender, your best advice is to shop for a mortgage is through a reputable mortgage broker.

If you are an investor, a repeat homebuyer, and you are financially savvy, you’ll likely get the best advice or deal shopping with an internet lender for your mortgage loan.

If you have an established, long-term relationship with multiple accounts, savings, checking, business, etc., with one particular lending institution, you are likely to get your best deal by negotiating your mortgage through them and seeking their advice.

If you are a convenience shopper and you are not concerned about the cost, and you want to locate the easiest and quickest loan available, you would be best suited to use your real estate agency lender or home builder in securing a mortgage.  Your real estate professional should be able to offer advice in this type of situation.

If you want to repay the loan in as little time as possible, you’ll need a larger down payment and shorter repayment terms (typically 15 years).  Do you want to avoid paying Private Mortgage Insurance (PMI)?  Unless you are fortunate enough to purchase a home at considerably less than its fair market value, or you can provide a 20% down payment, you should expect to pay PMI ― until the amount you owe on the home is 80% or less than its market value.

As an additional bit of mortgage advice, depending on how long you plan to stay in the home, you’ll need to decide whether you want an adjustable-rate mortgage (ARM) or a fixed-rate mortgage (FRM).  ARMs tend to have lower initial payments, but can expose the buyer to higher payments later on in the loan term.  An FRM may have higher payments in the early years, but the payments will not increase over time. The interest rate on a fixed mortgage is “fixed” for the life of the loan ― with the exception of any non-fixed expenses you’ve consolidated with your mortgage payment (such as property taxes and homeowners insurance).

It is recommended that you select a fixed-rate mortgage if you plan on staying in your home for at least 7 years and you can afford the regular payments.  Fixed mortgages are also generally less complicated than adjustable-rate mortgages. There are many options available today to accommodate fluctuating incomes, and the best mortgage advice is to thoroughly understand the terms before signing the contract.