Looking at homes for sale can be the fun part of buying a house. The real work comes when you’re picking a mortgage lender that can give you the best loan for your circumstances.
After detailing your income, expenses, down payment and a monthly mortgage you can afford, a lender will run a credit check and should be able to tell you the best options for the interest rate and loan product.
Here are some questions to ask as you comparison shop for a lender:
What’s the interest rate?
This will be based on your loan and credit score, and determines your monthly payment. The lower the interest rate, the lower the payment. Improving your credit score can help lower the interest rate you qualify for.
Fixed rate or ARM?
Fixed-rate loans have the same interest rate for the life of the loan, from 10 to 30 years. Interest rates on adjustable-rate mortgages, or ARMs, change after an initial period, such as a year, and then at regular intervals.
Ask how often an ARM rate will change, the index its tied to, and what the cap is on the interest rate during one period and the life of the loan. Make sure you can afford the higher rate. An ARM will have a lower interest rate than a fixed-rate loan, and can be a good idea if you’re not planning on living in the home for long.
How much is the monthly mortgage?
Answering the first two questions will get you to this answer. It’s a number you should already have in mind before looking for a house, and should be an amount you can afford.
Be sure to include other monthly costs, including insurance, taxes and, if required, private mortgage insurance, or PMI. This insurance is often needed if you don’t have a 20 percent down payment and is meant to protect the mortgage company if you default on the loan.
One-time fees called “points” are due at closing and each point paid will lower your interest rate by 1 percent. Another option is to not pay any closing costs upfront and to have them rolled into the loan in exchange for a higher interest rate.
If you want to lock in the interest rate and points for a certain amount of time in case rates go up, you may have to pay a fee.
Also ask if there are fees for making extra mortgage payments so you can pay off the principal amount early. Some loans don’t have prepayment penalties, but some do.
A lender should be able to help you find the best home loan for your finances. Just be sure not to sign a contract with them until you’re satisfied you’re getting the best deal with the best mortgage lender you can find.
I hope you found this information helpful. Please call me with any questions at 240-401-5577 (C) or 202-243-7700 (O)!