Of all the purchase decisions we make in our lives, few are as nerve-racking or as important as buying a home.
And it’s not just finding the right home in the right neighborhood that’s stressful – shopping for a mortgage can be equally frustrating.
But with the low interest rates we’ve experienced in recent years, this may still be a great time to buy a home or to refinance the one you’re in. If you’re in the market, here are six ways for you to shop for a mortgage.
1. Prioritize your wants and needs.
Before you do anything, you need to sit down and make a list of the things that are important to you about a mortgage. This includes everything from the monthly payment you can afford to the length of time it will take to pay off the amount you are planning to put down.
You also need to determine when you want to close. The length of time for your lock-in period will have an impact on your loan rate. You should work all of this out beforehand.
2. Learn your options.
When you begin shopping for a mortgage, you’ll soon notice there are dozens of different options to choose from. That’s because everyone’s financial situation is a little different. What works for one person may not work for another.
You get to choose from a 15-year or 30-year loan, an adjustable or fixed rate loan, a conventional or FHA or jumbo loan – the options are vast. Learn the differences and what your available options are.
3. Compare different loan fees.
Knowing what different mortgages will cost is incredibly important. The interest rate you pay is only a part of the cost of your loan.
Points and fees can make up a big portion of the initial cost of a loan and can dramatically reduce what you have available for your down payment.
Ask your lender to explain each of the fees and what they include. Many lenders’ fees have different names for the same thing.
“Knowing the options will
give you a distinct advantage.”
4. Shop around.
Once you’ve come to the point where you are actually shopping for a loan, do so in a relatively short period of time. There are a few reasons for this.
First, loan rates change all of the time based on market conditions, and what may appear to be a better rate may just be a temporary fluctuation. Next, the impact on your credit score from multiple hard inquiries can be minimized by shopping multiple lenders all within a two-week period.
5. Points or no points?
The decision whether or not to pay points will impact what you pay upfront, as well as your monthly payments. Points are essentially interest payments made in advance.
If you plan to stay in your home for a long period of time, paying points now to reduce your payment over the life of the loan can make sense.
Finally, don’t be afraid to negotiate with a lender for their best deal. Depending on factors like your credit score, down payment amount, loan to value ratio and other factors, a lender has some flexibility in the terms they can offer.
One lender may have more leeway in how they measure your risk, so ask them whether you can improve your borrower rating by making any adjustments.
Knowing the options available and the ways loans are made will give you a distinct advantage when shopping for a mortgage. Learn all you can ahead of time by educating yourself on the process.
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