Most people take out a mortgage loan to help them buy a home, which results in making mortgage payments, possibly for decades. It’s important to assess your options and shop around before committing to a mortgage lender and a loan program that’s right for you.
To avoid getting stuck with a lender that doesn’t work for you, take the time to shop around. Considering your options and different lenders will help you evaluate everything that’s out there.
1. Compare Rates
When looking for a mortgage lender, look at the interest rates. Are they competitive? It may be appealing to go with the lender that quotes the lowest rate, but no lender can guarantee a rate. Sometimes lenders will offer a lower rate in exchange for higher origination fees, such means higher closing costs that you have to pay upfront. Keep in mind the rates and programs you are eligible for will likely depend on your financial situation and the lender you choose.
A good place to start is by researching and understanding the common loan types offered. Interest rates for fixed-rate loans do not change over the life of the loan. Interest rates for adjustable-rate mortgages can change over the life of the loan and can be influenced by the Federal Reserve.
When you talk to a lender, ask about the interest rate and also their annual percentage rate. The Annual percentage rate takes into account different fees and credit charges, and it gives you an easier way to compare loan offers.
2. Find Out What Fees You Are Responsible For
You could unexpectedly be left on the hook for costs in addition to your down payment.
Paying a mortgage brokers’ commission fee. This fee is either paid by you or your lender or a combination of both.
Origination fees cover the cost of processing your loan application.
Appraisal fees cover the cost of having a professional come in and determine the value of the home you want to buy. You have to have a property valuation of some type to secure a home loan.
These additional fees will impact the overall cost of buying a home and depending on your loan terms, you might have to pay these fees upfront. Do your research and read the fine print before signing with a lender.
The quickest way to get a look at all the fees you’ll be expected to cover is to request a quote from the lender. The quote will show you all the costs and fees associated with the loan you are considering. Make sure to ask questions about what each fee covers.
3. Determine If A Lender Is Meeting Your Financial Needs
Some lenders require a 20% down payment for you to qualify for a mortgage. If you can’t make this down payment, some lenders may require you to have private mortgage insurance, which covers them just in case you default on your mortgage payments. Or you can look for lenders who offer more flexible down payment requirements.
Remember to figure out how long you’ll pay off your loans and decide what time frame works best for you. A shorter-term will most likely come with higher monthly payments in exchange for lower interest rates that result in lower interest charges over time. Once you’ve found a loan with rates that work for you, you can get a rate lock from your lender that will last about 30 to 45 days.
Once you decide which offer is best for you, you are one step closer to homeownership!