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Selecting the Mortgage Product

The topics in Chapter 2, “Qualifying for a Mortgage Loan,” Chapter 4, “Choosing the Right Type of Mortgage,” Chapter 7, “Investor Loans,” and Chapter 8, “Refinancing,” all affect the type of mortgage that you select. Read through them and make your selection before calling lenders (see Figure 5.4). Make sure that

FIGURE 5.3 Sample Mortgage Data Form

Sample Mortgage Data Form

FIGURE 5.3 Sample Mortgage Data Form (continued)

Sample Mortgage Data Form (continued)

your loan amount and the loan-to-value (LTV) ratio fall within the limits of the loan that you select. (See Figure 4.24, Restrictions on Different Types of Mortgages.)

Mortgage insurance. If your LTV ratio is greater than 80 percent and you are shopping for a conventional loan, you usually are required to pay a mortgage insurance premium (MIP) each month as part of your monthly payment (see Chapter 6). Yearly mortgage insurance premiums vary from 0.25 percent to 0.50 percent of the original loan amount depending on LTV ratio, loan type, and loan amount. These premiums increase your effective interest rate by the rate of the premium.

FIGURE 5.4 Step 2: Select the Mortgage Product

Step 2: Select the Mortgage Product

FIGURE 5.5 Step 3: Telephone Lenders and Compare Rates

Step 3: Telephone Lenders and Compare Rates

Some lenders self-insure by charging a slightly higher mortgage rate instead of requiring mortgage insurance. To compare their rates to lenders who require mortgage insurance, you must add the mortgage insurance premium rate to the rate to get the effective rate. If none of the lenders that you canvass self-insures or your LTV is 80 percent or below, you can ignore the cost of mortgage insurance.

Temporary buydown. If you plan to use a temporary buydown to help in qualifying, you must ask about the cost when you do your rate shopping (see Chapter 6). Different lenders charge different amounts for the same buydown plans, just as they charge different rates for the same loans.

 
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