In most cases home buying is a process. It begins with deciding if now is the right time to buy, getting your finances in order, shopping for a mortgage loan, find a realtor, the home search, and closing on your new home. This article is going to focus on the 3rd step in the process: Shopping for a mortgage loan.
A mortgage loan allows you to borrow the cost of a home from a lender and make modest payments on the home (plus interest) rather than paying for the full price of the home at purchase. A mortgage may be the largest financial commitment you make in your lifetime so it’s important to do it right.
Shop Around To Find The Option
The first step is to get an idea of what rates and offers lenders can make for a borrower like you- with your credit score, etc. But ask that they don’t pull your credit report. Too many hard pulls on your credit report can actually temporarily lower your credit score- which may increase your interest rate. Keep an eye on your credit report with a free service with Experian. Compare rates across lenders then once you have chosen the lender you like, approach them again. To give you a formal loan offer, they will need to do a single hard pull on your credit.
Approach several lenders for loan offers. That way you can compare across offers to find the best offer available. Some good places to approach for a loan include: credit unions, banks, and mortgage companies. Ask each lender for the same loan amount, loan term, and type of loan. This will allow you to compare apples to apples. Make sure you get the following information from each lender:
- What are their current mortgage rates?
- Is the rate fixed or adjustable? A fixed rate is exactly that, you pay the same interest rate that you agree to over the life of the loan. Keep in mind that an adjustable-rate mortgage means that the interest rate that you pay the lender will likely change over the life of the loan which often leads to increased mortgage rates. If you go with an adjustable rate mortgage (ARM) ask how your rate may vary. Will your loan payment go down if interest rates decrease.
- Ask about the loan’s APR. The APR takes into account the interest rate, points, broker fees, and other credit charges expressed as a yearly rate.
Points are fees paid to the lender for the loan, usually the more points you pay, the lower the rate. Ask that the points be quoted to you as a dollar amount so you know how much you will actually be paying.
There are often thousands of dollars in fees associated with a mortgage loan. These fees vary from loan origination fees, underwriting fees, broker fees, and closing costs. Ask for an estimate of the cost of these fees. Ask for an explanation of any fee that you don’t understand. Also keep in mind that many of these fees are negotiable.
Down payments can vary from 0-20% percent and there are many options for every type of borrower. If you don’t have the money for a down payment you may be required to purchase mortgage insurance as well. Mortgage insurance payments can be hundreds of dollars per month and you may be required to keep it until you have built up equity in your home and you refinance. Let your lender know how much down payment you can afford.
Cut A Deal
Now that you have all your options laid out, choose the lender you prefer. Lenders often have some flexibility in their ability to make offers so it’s worth negotiating the best offer you can make. Get a list of all the costs associated with the loan and ask the lender to reduce one or more of these fees. This will allow you to be sure that the lender isn’t agreeing to lower one fee while raising a different one. Once you are happy with your negotiated terms, obtain a written lock-in. The lock-in should include the rate, how long the lock-in lasts, and the number of points to be paid.
Once you have a mortgage loan lined up, it’s time to start searching for a home. For that you will a great realtor. If you’re looking for a home in Beautiful Big Island, give Jade Halama a call.