Five Important Mortgage Shopping Tips To Help You Choose The Right Mortgage

December 22, 2019

When setting out to buy a home, shopping for a mortgage is the single most important aspect of the process. Your mortgage will not only determine how much house you will be able to buy – it will also have a long-term effect on your financial reality for the next 15-30 years. Keep reading for a few essential pointers to help guide you in the right direction when looking for a mortgage.

Mortgage types

1. Know Which Type Of Mortgage Is Right For You

Not all mortgages are created equal, and not every mortgage will be suitable for your needs. In general, mortgages come in 15 or 30 year terms, each intended to suit different home buying needs. While the monthly payment on a 15-year mortgage will have a higher monthly payment, due to the shorter lifetime of the loan, you can expect to pay less in interest and thus pay less for the loan overall. On the other hand, 30-year mortgages will have a lower monthly payment, but you can expect to pay more interest over the lifetime of the loan.

Additionally, you should determine if an adjustable rate mortgage (ARM) or fixed rate mortgage (FRM) is best for you. As a general rule, you should look for an ARM only if you do not plan on living in the home for more than a few years. If this is the case, an ARM could be right for you. FRMs allow you to plan your budget with fewer surprises along the way, but it does mean that you will miss out in the event that interest rates drop. For the majority of homebuyers an FRM will generally be the best choice.

Shop for mortgage

2. Shop Around For Your Mortgage

That is, don’t snatch up the first offer you find. Go to several lenders (aim for a minimum of three) and get a loan estimate from each one. This will allow you to compare not just the interest rate being offered by each lender, but also any other associated costs, fees, and terms. Make sure you are getting quotes for the same product however – don’t get a quote for a 30-year fixed-rate mortgage and compare it with a 15-year adjustable-rate one. Determining which mortgage is right for you ahead of time can enable you to make an informed decision and narrow down your options.

Types of mortgage lenders

3. Get Up To Speed On Your Lending Options

Don’t pigeonhole yourself into checking only one type of mortgage lender. There are various lenders on the market, each offering slightly different terms and catering to different types of buyers. Do your homework to determine which type of lending institution is right for your unique situation. Some interesting options with potentially more attractive rates and terms include credit unions or mutual savings banks (sometimes called a savings and loan association, or S&L for short). No matter which lender you choose, make sure they are registered in your area with the Nationwide Multistate Licensing System Registry.

Mortgage additional fees

4. Don’t Focus Only On Interest

Many people focus only on interest rates when shopping around for a mortgage, but interest rates only tell half the story. Make sure to enquire about additional fees you can expect before purchasing a loan. Things like title fees and closing costs can have a huge impact on how attractive a loan really is, and it’s important to compare all the variables before taking out a loan.

Mortgage overall costs

5. Consider If Buying Points Could Be Right For You

Put simply, buying points on your mortgage is like paying a portion of the loan upfront. One point is equal to one percent of the mortgage (e.g.one point of a $200,000 mortgage is equivalent to $2,000). The idea behind this is to save on interest over the lifetime of the loan, thus lowering your overall costs. Points only make financial sense if you plan to stay in the home long-term. If you plan on staying in the home for more than a few years and have the financial means to purchase points, talk to your lender about purchasing points and what the effect will be on your interest rate and mortgage overall. They will be able to provide you with a forecast of how points will affect your mortgage over its lifetime, and determine the break-even time period for points to be worthwhile.

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