Purchasing a home might be the biggest financial investment you might make. Due to the high cost, you might likely need a mortgage. Eventually, the interest rate charged on the loan decides the cost of the mortgage and the estimation of your monthly payments. A minute difference in rates hugely affects how much interest you’ll be paying over the life of the loan.
In reality, mortgage payment makes a big difference in how much you’ll pay for your home, it makes financial sense to shop around for the lowest rate you can acquire. Here are the five steps you should take.
1. Get Your Credit Score
Generally, lenders will utilize your credit score in deciding if you are eligible for a loan and at what rate you’ll be given a loan. The higher your credit score, the greater the mortgage offered to you. It’s advisable to get your credit report at least six months before you intend to get a mortgage so you can have time to amend any errors that might be in your credit report.
2. Consider Mortgage Types
Prior to obtaining a mortgage, know which type of mortgage you require and the term you need so that you can justly differentiate between lenders. Three basic mortgage types include:
• Fixed-rate mortgage. A fixed-rate (or “plain vanilla”) mortgage is a conventional loan that has a set (or fixed) rate of interest for the entire loan term, allowing you to spread out the costs of your home purchase over time while making predictable payments each month. Fixed-rate loans are ideal for buyers who have steady sources of predictable income and who intend to own their homes for extended periods of time.
• Adjustable-rate mortgage (ARM). An adjustable-rate mortgage (also called variable-rate or floating-rate) is a conventional loan with an interest rate that changes periodically, usually in relation to an index. The introductory rate (the teaser rate) is often lower than the rate available on a fixed-rate mortgage, but the rate may change at any time after the introductory period, resulting in sometimes sizable increases in your monthly mortgage payment. Adjustable-rate loans are typically the recommended option for buyers who anticipate declining interest rates (to avoid being locked into a higher rate), who plan on living in the home for a limited number of years or who expect to pay off the loan before the interest-rate adjustment period is reached.
• FHA (Federal Housing Administration). Many first-time homebuyers can qualify for FHA loans. These typically have less rigid borrowing requirements with low down payments, reasonable credit expectations and more flexible income requirements. A home financed with FHA loans must be the borrower’s primary residence and must be owner-occupied (no investment or rental properties).
3. Consult United Financial Counselors
In order to obtain the best mortgage, you must consult with different lenders such as United Financial Counselors. You can do this by trying out an internet search with your city and state. Compare rates from each lender and choose the best deal.
You have the right to negotiate with your lender for better terms. Once you’re satisfied with the rates you have gotten, you can go for it.