If you are looking to buy a home soon, finding the best mortgage rate should be something you are considering. Getting the best home loan could mean saving money on closing costs and reducing the amount you pay in interest to the lender.
To help you get the best mortgage rates when you buy your home, there are some questions you need to ask. We will examine what you need to consider when searching for a mortgage.
Should I choose an ARM or a fixed-rate mortgage?
Your home loan will have either a fixed rate or an adjustable rate. If you choose a fixed-rate mortgage, your monthly payments will stay pretty consistent as the principal and interest will remain the same each month.
Other things like property taxes and homeowners insurance premiums will change, however.
An ARM, or adjustable rate mortgage, will start with a fixed rate for an introductory period. This period could be as long as ten years, though it’s likely to be less.
The interest will usually be fixed at a lower rate during this period. When the introductory period ends, the rate can increase, sometimes by a lot. Understanding the pros and cons of an adjustable-rate mortgage is essential.
Is it a good idea to pay points?
A point is 1% of the loan, and paying points reduces the interest rate you will pay on the mortgage. Each point you decide to pay will typically reduce the interest rate by 0.25%.
If you have the money to do this when buying your home, it will reduce your monthly payments slightly for the mortgage term. The break-even point could be between 7 and 10 years when buying discount points.
If you don’t expect to live in the home for too long or if you plan to refinance, it probably isn’t worth the cost to buy points.Â
What are closing costs?
Lender fees to arrange the loan and other costs during the buying process need to be paid at closing. These closing costs could be between 3% and 6% of the loan amount and might include appraisal fees, title fees, processing charges, and underwriting fees.
The closing costs will be explained in your loan estimate, and you can even shop around for some of them to lower your costs.
Am I eligible for any buyer programs?
You could benefit from a special program to reduce costs if you buy your first home. These programs are offered in many states and aren’t only restricted to first-time buyers.
You could take advantage of a down payment assistance program that many states offer. If you meet their program criteria, you might also receive lower interest rates and other discounts when buying your home.
There could be programs to assist in buying a home in a particular location and to help buyers working in certain professions.
How much will the down payment be?
Some people can buy their home with zero down through the VA or USDA. But even if you don’t qualify for those loan programs, you could buy a home with a 3% down payment.
- Conventional loans. If you choose a conventional loan, you might only need a 3% down payment. However, these home loans are often only for lower-income families or first-time buyers.
- FHA loans. An FHA-insured loan only requires a 3.5% down payment. They are available to buyers with lower credit scores.
- VA loans. If you are or have been a military member, or your spouse was, you could buy a home with a 0% down payment.
- USDA loans. If your home isn’t located in an urban area, you might be able to qualify for a USDA loan with zero down.
Comparing loan offers
To ensure you get the best home loan, apply to multiple lenders. They will offer different interest rates, charges, and terms for your home loan. Compare the results you receive from the lenders to see which offers you the best deal.
You can apply for multiple home loans without negatively affecting your credit score if you do it over a short period. The credit bureaus allow loans to be compared and treat multiple applications for the same type of lending as one hard inquiry on your credit report.
The loan estimate will state the closing costs. This allows you to see how much you will be charged at closing. These estimates make it easy to compare the closing costs between lenders and should help you find the best loan.
Final thoughts
Working on improving your credit score before a home purchase will help immensely. The terms you get on your mortgage will directly reflect what you pay for the house.
To get the best mortgage for your needs, it also makes sense to shop the terms offered by several lenders. You might consider working with a mortgage broker for assistance.
