As you begin to search for the best mortgage, you will quickly discover that it can be a daunting task. Many people are quick to settle with the first lender they like and, as a result, end up paying more than they would have if they had continued to hunt down the best bargain. However, trying to figure out the jargon and applying to multiple lenders is time consuming.
Understanding What You Can Really Afford
This is likely going to be the biggest purchase of your life. After exploring the market and seeing the average cost of homes in your area, you might already be wondering if this home will be affordable. Using an online calculator, you can get an idea of what your maximum budget will be.
One thing all lenders will look at is your credit score. Having good credit makes you a candidate for better mortgage rates. However, some lenders might encourage you to push outside of what you feel comfortable spending. After all, it is their job to sell you a mortgage. Don’t commit to something you aren’t comfortable with, however. You want to be able to enjoy life and have a home.
Create A Savings Goal To Help With Your Down Payment And Closing Costs
Most lenders want to get you the biggest loan they can– but they’ll also expect that you have money set aside for a down payment and closing costs.
For many, a down payment just does not seem feasible. To make a significant difference on your loan, you’ll need to put 20% down. This not only will provide you with instant equity but will also help you get a better interest rate, reduce your monthly payment, and make you a more competitive buyer. A small down payment, or none at all, means a larger loan and potentially a home that is worth less than you owe – something you’d want to avoid if you plan on moving in the next few years.
The Length Of The Loan
You’ve probably heard of a 30-year loan when it comes to mortgages and while that is an easy way to reduce your payments, it is a larger commitment. You will also be given the option of 10- and 15- year mortgages. If you want to determine the length of the loan yourself, you might look for a lender that offers “write your own mortgage” programs that can be any length between 10 and 30 years.
If you are able to afford a larger monthly payment on a shorter-term loan, you will be offered a better mortgage rate and pay less in interest over the duration of the loan.
Choosing The Right Type Of Mortgage
We’re not going to do a complete breakdown of each type of mortgage loans, instead we will just give you a list and let you decide which one might work for you based on your circumstances:
- VA Loans: If you or your spouse have ever served in the military, look into this type of loan.
- USDA Loans: For those looking to live in rural or suburban areas.
- FHA Loans: If you have a lower credit score, this is an option for you.
- Jumbo Loans: For those purchasing a home that is more expensive than the normal loan standards permit.
- Conventional Loans: Consider this route if none of the above are the right fit. This is also many lenders’ preferred loan type.
Knowing How Interest Rates Work For Mortgage Loans
Interest is the price that you will pay to borrow the money you need to purchase your home– and it is a big factor to consider when choosing the best mortgage loan for you. Mortgage rates are constantly changing. Back in the day, some homeowners opted for a variable rate which was great until rates skyrocketed, and the housing market crashed. Today, a fixed rate is your best bet for long term security. You can always refinance should rates drop but you won’t have to worry about not being able to afford your home should they raise.
While a fixed mortgage rate might start out a little higher than an adjustable-rate mortgage, the adjustable-rate resets annually after the initial term of three, five, seven, or ten years, and it can go in any direction. It’s kind of like taking a gamble on your mortgage.
When choosing how you want your interest rates to be set, consider your intentions for the home. If you have plans to move within five years, refinance, or pay off the mortgage in its entirety before the guaranteed rate on an adjustable-rate expires, it might be the right option for you. It is important to consider that if you decide to stay in the home after that, the interest rates to refinance into a fixed rate could have increased substantially.
Take Time To Shop Around
While this might seem like a time-consuming task, it is easily the most important way to ensure you are getting the best mortgage– get rates from at least three lenders. This is one of the biggest investments of your life, so shop around.
What you are able to save in interest and on your monthly payments will allow you more money to live and enjoy your home. You deserve the best mortgage rates with the lowest origination cost.
Contact Dan (954-336-1922) for a free consultation!
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About Dan Campanella – Mortgage Specialist
Dan provides clients with years of proven experience and an abundance of financing options for their mortgages. His common sense approach and devotion to customer service is what sets him apart in the highly competitive mortgage industry. Dan prides himself on consistently delivering “referable services” to his clients, referral sources, and partners.