Purchasing a home is a major life event. Usually, a homeowner has more net worth than the average renter. However, this is only if that homeowner has the right kind of mortgage. Use the following four tips to make sure you get the best mortgage loan.
1. Pick the best mortgage for your needs
There are different types of mortgages. Some are government-insured. Some are eligible for government-sponsored sales. However, some of these do not fit into either of these two types.
There are different eligibility requirements for certain loans. It is important that you know and understands the following things:
- USDA, VA, and FHA loans are all government-insured. If you don’t pay the loan back, your lender is protected. Chances are, lenders don’t require high down payments for these types of loans. In addition, they are easier to get, and they have good interest rates.
- Fannie Mae and Freddie Mac loans are government-sponsored entities that get loans via a secondary mortgage market. A conforming loan has guidelines that are set by Fannie Mae or Freddie Mac. If a lender offers a conforming loan, it has to follow guidelines in reference to borrower eligibility, down payments, and loan limits.
- A nonconforming loan doesn’t have Fannie Mae or Freddie Mac guidelines to follow. They are not easy to sell either. Beginning in 2018, loans that are more than $453,100 are nonconforming. Also, loans originated in Alaska, Guam, or the Virgin Islands that are more than $679,650 are also nonconforming. Most lenders have both conforming and nonconforming loans. Unfortunately, there aren’t that many loans insured by the government.
2. Know what the national mortgage rates are
Not only should you know what type of loan you’re looking for, but you should also know what mortgage rates to expect. Always shop around.
Many online outlets list national mortgage rates. For instance, the Federal Housing Financing Agency keeps a listing of rates for the last couple of months. This makes it easy to compare historical trends. If you know what to expect, you’ll know if a lender is trying to scam you.
But understand that if your credit is bad, you won’t get the best interest rate. Improve your credit rating before applying for a mortgage loan. Pay down as much debt as possible, and always check your credit report regularly for mistakes.
3. Make lender comparisons
If you know what rates to expect, and your credit is good, start looking at different lender loans and make comparisons. Use the internet to research each prospective mortgage broker and compare your options for financing your home.
Make sure you’re not comparing apples to oranges when analyzing different lenders. Evaluate the following things:
- Interest Costs- A lot of lenders display interest rates as APR. This is an annual interest that does not take compounding into account. Other lenders will use APY instead of APR. This means interest is paid over time and accounts for how often it will be added to the principal. APR is normally lower than APY.
- Points- It’s possible to pay points to get a lower mortgage interest rate. Each point is the equivalent of one percent of the loan amount. This decreases your interest rate. For instance, one point may be a reduction in the rate of .25 percentage point. If two lenders want to offer you the same interest rate, but one of them says you must pay points, the rate with the first one will be lower.
- Loan fees and origination costs- Most loans have added fees such as those for appraisals, origination, and even credit checks. If you have to pre-pay more on one mortgage than another that is similar, then you should probably avoid doing business with that particular mortgage lender.
- Loan term- The average home buyer will choose either a 30-year or 15-year mortgage loan. If you choose the 15-year loan, your payments will be higher, but you’ll pay less interest.
- Fixed or variable rates- Your monthly payment and interest rate won’t change during your mortgage duration if you choose a fixed rate. If you get a variable rate, your payments and rate will be lower at first but will go up as time goes by.
Get a loan that suits you. If you’re going to live in your home for a long time and don’t want to assume a lot of risks, then get the best-fixed rate loan you can find.
4. Check out a prospective mortgage broker’s reputation
Make sure that a prospective mortgage lender is well-liked by its current and past borrowers. You want to be treated fairly and not fall into any traps. Some of the main things that you want to look for in a prospective mortgage broker are the following:
- How hard is it to get a loan with this mortgage lender?
- How long does it take to close the loan?
- Does the mortgage broker provide good customer service?
Chances are, your mortgage will be sold to another loan provider once it goes through the closing process. But make sure your chosen lender has a good reputation. This is the best way to ensure that you’ll get treated right during the mortgage closing process. Choosing the right mortgage lender is very important, even if your loan is eventually sold to the next service provider. You want to start your mortgage journey on a good foot.
It is imperative that you get the right mortgage and choose the best mortgage lender. It will take years for you to successfully pay off your mortgage, which means paying the lender plenty of money in interest. Get the best loan for your situation, and cut down stress overall.