In my opinion, this is one of the most important thing for home buyers to understand before choosing a San Diego home loan. If you’ve been watching the news lately, you’ve no doubt heard about the wave of mortgage foreclosures that has swept across San Diego (and the nation at large).

Many of these foreclosures are the result of subprime mortgage loans that were also adjustable-rate (ARM) loans. I’m willing to bet that if all of these people understood the concept of an ARM loan, they would have either avoided it to begin with, or refinanced the loan prior to the adjustment period.

That’s why it’s critical for consumers to educate themselves on such topics, and this tutorial is a good place to start. You have to educate yourself and be a smart shopper when choosing a San Diego home loan.

Buying a home in San Diego can be an exciting and even nervewracking process — especially if you are new to the home buying process. The mortgage process, however, tends to overwhelm a lot of first-time San Diego home buyers.

A common point of confusion among home buyers is whether to use a primary lender or a mortgage broker when obtaining a loan. But simply by understanding the differences between the two types of San Diego mortgage professionals, you’ll be better able to choose the right one.

Difference Between Primary Lenders and Mortgage Brokers

When you sit down with a mortgage professional to discuss lending options, it’s important to know whether he or she represents the lending institution directly (a primary lender) or represents multiple lending institutions (a mortgage broker).

So there we have the key difference between a San Diego mortgage lender and mortgage broker:

• The primary lender represents a single lending institution
• The mortgage broker, on the other hand, can represent several lending institutions at the same time.

A primary mortgage lender can place you in any of the mortgage programs offered by that particular bank, as long as you qualify for the program. Mortgage brokers can do the same thing, but because they represent multiple lenders you may have more options for loan packages.

San Diego mortgage brokers charge fees for their services. So the first thing home buyers will ask is, “What are the broker’s fees, and who pays them?” It’s important to answer these questions up front, especially when you consider that broker fees are typically expressed as points — and each point equals one percent of the loan amount. That can be a sizable chunk of money for a home buyer to pay.

So, before making a decision on whether or not to use a San Diego mortgage broker you should find out who pays the brokers fees. In many cases the fees are paid directly by the San Diego lending institution that the broker “hands” the deal to. In this case, the home buyer would not have to pay any broker fees. In other cases, however, the home buyer will have to pay the mortgage broker’s fees.

Here’s another point to consider. If you have bad credit, or if it’s difficult to prove your full income, you might consider working with a mortgage broker (as opposed to going straight to a San Diego mortgage lender for a loan). Because brokers work with multiple lending institutions, they will normally have more options at their disposal.

Choosing Your San Diego Mortgage Professional

Regardless of whether you choose to work with a San Diego mortgage lender or a broker, be sure you feel comfortable with them and confident in their abilities to help you. You should also feel free to ask questions about your mortgage loan options.

After all, buying a home will likely be one of the largest financial moves of your entire life. So you need to be comfortable with all of the players.

Related article on broker leads and related mortgage topics. 

Well hopefully, you started your mortgage preparation some time ago. It’s best to identify the type of San Diego mortgage loan that meets your needs long before you put an offer on a home.

So let’s hop into our time machine and go back about two months, so we can take the proper steps in choosing a San Diego home mortgage loan.

Here’s how to decide which type of San Diego mortgage loan is right for you, by following a simple three-step process:

Step 1 – Determine your mortgage profile.

Start by writing down some answers to the following mortgage questions. (A) How long do you plan to live in the home you end up purchasing? (B) How much of a down payment can you afford to put down on a home? (C) How much of a mortgage loan can you comfortably afford to pay each month?

Step 2 – Study the mortgage types.

Once you’ve answered the questions in the previous step, you are ready to move on to the various types of San Diego mortgage loans that are available. Here’s a great place to start: If you visit HomeBuyingInstitute.com, you’ll see a menu item labeled “Types of Mortgages.” Spend some time reading through the many helpful articles there, and you’ll better understand the different types of home mortgage loans that are available.

When reading about the different types of mortgages, pay particular attention to any sentence that starts with “This mortgage loan may be a good option for you if…” Also pay attention to any pros and cons mentioned for each of the mortgage types.

Step 3 – Match your profile to a mortgage type.

Let’s summarize our steps. So far, you’ve identified some things about yourself to create a your mortgage “profile,” and you’ve learned about the different types of San Diego mortgage loans you’ll be choosing from. Now you can take the next logical step — matching your mortgage profile to a particular type of home mortgage loan.

Let’s look at a hypothetical example. If you know you will only be in the home for less than three years, and you want to keep your monthly mortgage payments as low as possible, then an adjustable rate mortgage (ARM) might be the way to go. This is just one example of matching your mortgage profile to a type of mortgage. Once you understand your own profile, you’ll be able to weight it against the pros and cons of each mortgage type to choose one that’s best for you.

I hope this article helps you choose the San Diego home loan that best meets your needs, and I wish you well in your home buying adventures.

Thus, when choosing a San Diego home loan, it’s very important to consider each type of mortgage loan carefully to assess the pros and cons and how they apply to your home buying situation.

Only the Home Buyer Can Decide

I often get asked the question, “Which type of home loan is right for me?” But in truth, this is not a question I can answer for somebody else. The only person who can make that kind of home-buying decision is the actual home buyer.

With that “disclaimer” out of the way, I can certainly offer advice on which type of home loan you might consider, mainly by pointing out the pros and cons of each type of mortgage. This will at least help you make an informed decision regarding San Diego home loans.

Types of San Diego Home Loans

When choosing a type of home mortgage loan, the best way to begin is to narrow the field. For example, you should first decide between a fixed-rate and adjustable-rate mortgage loan, and you can make that decision by learning the pros and cons of each.

The major difference between San Diego home loans has to do with their interest rates. All home mortgage loans are either (A) fixed-rate or (B) adjustable-rate. Of course, there many different loan options within these two categories, but it all starts with the fixed vs. variable classification.

As the name implies, the interest rate on a fixed-rate mortgage loan will never change, regardless of what the economy does. On the other hand, the interest rate on an adjustable-rate mortgage loan (or ARM loan) will adjust periodically during the life of the loan.

So this is the first decision you must make when choosing a San Diego home loan — fixed or variable rate. To help you make that decision, I’ve summarized the pros and cons of each:

Fixed-Rate Mortgage Loan: Pros & Cons

As we’ve said, a fixed-rate mortgage keeps the same interest rate over the life of the loan. As a result, your monthly mortgage payment does not change.

This payment certainty is the primary benefit of a fixed-rate home loan. No matter what the economy does, you will always know what your interest rate will be. The downside is that you’ll pay a premium for this predictability, in the form of a higher interest rate.

When a San Diego mortgage lender grants you a fixed-rate home loan over a lengthy period (such as the standard payment period of 30 years), the lender takes on a certain amount of risk. If the prime interest rate goes up during the life of your loan, you will not have to pay the difference — but the lender will. This is why they charge a higher interest rate than with an adjustable-rate mortgage (next topic).

Adjustable-Rate Mortgage (ARM) Loan: Pros & Cons

If you choose an adjustable-rate mortgage, you will probably start off with a fixed rate for an initial period of time. This initial period will commonly last for 3, 5 or 7 years, and the rate you pay during this period will likely be lower than the rate on a regular fixed-rate mortgage. This is the lure that draws many home buyers into the ARM loan.

After the initial period, however, the loan converts to an adjustable-rate. There’s actually a lot of this going on right now, in San Diego and elsewhere across the nation. Many homeowners with adjustable rate mortgage are facing huge payment increases as a result of their mortgage adjustment.

An ARM loan may be a good choice if you only plan to live in a home for a few years. That way, you could benefit from the lower interest rate during the initial period, but sell the home before the uncertainty of the adjustment period.

Narrowing the Field

When you have decided between the adjustable-rate mortgage and the traditional fixed-rate mortgage, things will be a lot easier. By making this decision first, you will narrow your Sand Diego home loan options quite a bit. Then it’s just a matter of examining the different types of loan offers / products under the classification you’ve chosen, and picking the one that best accomodates you.

More information on types of home loans.

Happy home buying, San Diego!