How To Choose The Best Mortgage
When it comes to choosing a mortgage, you’ll need to consider your financial situation and your available options. Once you have a sense of the type of loan you want, you can compare lenders and offers. By understanding your needs and some basic loan terminology, you’ll be able to make a better-educated decision about your loan offers.
It is easier than ever to find a mortgage lender. Mortgage rates are readily available online on lender and rate aggregation sites, and many lenders aggressively post ads with their rates as a way to draw you to their website.
The banks or credit unions where you have accounts are good places to start on your mortgage loan search, as they might offer special rates and fees for customers. It’s also easy to search online and find lenders as well as websites that aggregate information—including ratings—about top mortgage brokers and lenders.
Finally, talk to friends and real estate professionals for references—they might be able to suggest a lender or broker that they’ve worked with and can recommend.
Figure Out How Much You Can Afford
Since this is a six-figure purchase, you're probably already wondering if it's really within your financial reach. A calculator can help you determine how much house you can afford.
If you have a decent credit score, lenders will likely be more optimistic about how much house you can buy than you are. Keep in mind, their job is selling a loan — your job is to pay it back. So leave some room in your budget for living life.
Strengthen Your Credit
Long before you start applying for mortgages, give your finances a checkup, and fix them, if needed. This means pulling your credit score and credit reports.
Once every 12 months, you’re entitled to a free credit report from each of the three main reporting bureaus – Experian, Equifax and TransUnion – by visiting annualcreditreport.com. If you have a lower-than-expected credit score, look through your credit reports for errors, late payments, delinquent accounts in collections and high balances.
Traditional Mortgage Versus A FHA Loan
If you are buying a house for the first time or you have not had a mortgage in three years, you may qualify for an FHA loan. The FHA loan can help you with closing costs and may reduce the amount that you need to put down to buy a home. The choice you make here really depends on your current situation. In many ways, saving up for a down payment and putting down twenty percent can demonstrate to yourself that you are ready for the financial responsibility of taking on a home. This does not mean that you should rule out an FHA loan or other first-time home buyer’s assistance. If the market makes it a good time to buy, you should take advantage of it, as long as you can truly afford the home.
Choose The Right Lender
Again: lenders are sales people. They want to make money off of you paying them back for borrowing your loan. It’s important to ask lots of questions so you know exactly what you’re getting into when opening a loan with them. Here are some questions to ask:
- Is there an underwriting, servicing or origination fee?
- Are there any other fees with this mortgage?
- Do you offer mortgage points?
- What are your interest rates for my pre-approval?
- Is there a cost to lock in a rate?
- Do you have pre-payment penalties?
Compare different lenders. Consider hiring a mortgage broker who can help do a lot of this legwork for you! Just remember, that mortgage brokers often get paid based on the loans they originate, and therefore they may not actually give you the best deal.