Tips on Shopping for the Best Mortgage Rates
Buying a home is a big deal it is typically the largest financial decision you will ever make. Unless you have a large sum of cash saved, you will need a mortgage to purchase your home. When you purchase a home using a mortgage you will be paying more than the principle value of your home. You will also pay the interest on mortgage, as well as homeowner’s insurance, property taxes and other community fees. Even a small change in your mortgage rate can affect your monthly payments and could increase the length of time it takes to pay your mortgage off. Take your time and think it through when you’re searching for a good mortgage rate. Here are some things you’ll want to go over before you begin searching for a mortgage.
Check Your Credit Score
It’s a good idea to get your credit report 6-12 months before you begin looking for a mortgage. This will give you time to fix any issues in your credit report. There is a common belief that having your credit pulled by multiple lenders will lower your credit score. While this may be true for many hard credit checks, those shopping for mortgages, car loans, and student loans get a break if inquiries occur in the allowable time frame (usually 30 to 45 days, depending on the type of loan). If the credit pulls happen within the allowable time frame, they count as only one pull for credit scoring purposes.
Know the Different Types of Mortgages
Before you go rate shopping you should know how much you want to borrow. The amount you want to borrow will depend on the prices of homes in your desired area, your income, the size of your down payment and the type of loan you choose. You should consider how long you want to live in your home when you choose a mortgage, if you are going to live in your home for a very long time you might want to consider a fixed rate mortgage. There are three types of mortgages they are:
1. Fixed-Rate Mortgages: A fixed-rate mortgage is a conventional loan that has a fixed rate of interest for the entire loan term. This allows you to spread the cost of your mortgage out over time and make predictable payments each month. A fixed rate loan is ideal for a buyer who wants to stay in a home for an extended period of time.
2. Adjustable-Rate Mortgages (ARM): An adjustable rate mortgage (also called a variable-rate mortgage) is a conventional loan in which the interest rate changes periodically. The introductory interest rate is often lower than the rate a fixed-rate mortgage, but the rate will change after a set period of time normally 3,5 or 7 years but could be as long as 15 years. The rate increase could mean a substantial increase in your monthly mortgage payments. ARMs are best for those who expect a decline in interest rates or who intend to stay in a home for a short period of time.
3. Federal Housing Administration Loans (FHA): FHA loans have more lenient borrowing requirements and allow lower down payments, they also have more flexible credit and income requirements. To finance a home with an FHA loan, the home must be the borrower’s primary residence and must be owner occupied (i.e. not a rental or investment property). Many first time home buyers can qualify for FHA loans.
Contact Multiple Lenders
There are many different financial institutions you can consider as your mortgage lender, such as: thrift institutions, commercial banks, mortgage companies, and credit unions. Make sure to provide each lender with consistent information, that way you can get fair comparisons to help you make your decision.
Here are tips to help you find reputable lenders online:
Compare mortgage rates with financial information aggregators like Bankrate and Nerdwallet.
Use real estate databases like Zillow, Realtor.com and Trulia to get mortgage estimates.
Visit lender sites like Bank of America, Chase and Citi directly.
Consider Additional Costs
Don’t fall for the low interest rate trap. Just because the advertised interest rate is low, doesn’t mean that it’s the best option. The cost of your mortgage can jump significantly if you don’t account for fees. Make sure you consider underwriting fees, broker fees, and settlement or closing costs. Ask your lender what fees will be applied and what each fee costs.
That’s right—you might be able to negotiate with your lender to get a better interest rate. Get all the costs of the loan in writing, then find out if they will waive or reduce the fees outlined in the offer. You can also ask if they’ll offer you better terms than a loan you’ve found elsewhere. Once you’re comfortable with the offered terms, ask for all the terms in writing. This should include the interest rate, the period of time the lock in lasts, and the number of points that need to be paid.
There’s a payoff to shopping around for the best interest rates. Even a small decline in your rate can save you tens of thousands of dollars over the lifetime of your loan. Make sure you do your research, because a mortgage is a long-term financial obligation that should not be taken lightly.
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