How do you know if you’re getting the best deal on a mortgage? Well, you’ll need to do some shopping around. However, with so many lenders, brokers and banks wanting your business it can be very tough to choose which mortgage is the best fit for your wants and needs.
How you can compare mortgages from different lenders so that you can get the best possible deal on your mortgage loan?
Start By Comparing Interest Rates
One of the most important factors in your mortgage is the interest rate, so this should be your starting point.
While most lenders will keep their rates competitive with one another, you may find that there are discounts available based on your credit or financial history. You might also find that some lenders are willing to adjust the rate based on how long of a mortgage term you’ll need, and how much you’re investing in your down payment.
For example, you will receive a lower rate for a 20-year, 15-year or 10-year loan. You will also receive better pricing if you are doing a 20% down payment over a 5% down payment.
FHA, VA and USDA loans will be slightly less in rate than a conforming loan in most situations. With FHA you will also need to account for the up front mortgage insurance and annual (monthly) mortgage insurance.
So you will want to take a look at all of your available options.
Get An Estimate Of Your Total Closing Costs
While the number that you’re likely focused on is the total monthly payment that you’ll be making for the next few years, you’ll also want to find out how much in fees and closing costs you will have to pay in order to take out the mortgage.
Every lender charges different fees and the amounts can vary wildly, so be sure to get an estimate on these costs to find out how they’ll affect your home purchase.
The Annual Percentage Rate (APR) has nothing to do with your actual monthly payment, but it does have to do with the cost of your loan. The APR is a great tool to use when comparing apples to apples. If you are comparing my loan estimate with another lender and we both are offering the same interest rate and loan program you can quickly look at the APR and see who is charging more in fees. The higher the APR, the higher the fees associated with that loan. Again, this only applies when comparing like scenarios.
Cost vs. Benefit
Finally, you’ll want to see choices when getting a loan. You will want to see different loan options available to you so you can compare them to see what loan program will be the best fit for your needs and wants.
Each type of loan has it’s pluses and minuses and your lender should provide you with several loan options so you can compare each.
The lowest interest rate is not always the best option. Crazy to say, but check this out. A lot of online lenders quote will quote an interest rate with a 1% discount or origination attached to it. So, you are actually paying more for a lower rate. How much does your payment go down for this lower rate? How much is that 1%? Divide the savings by the cost and you will see how long it will take before it becomes a benefit to you. If you plan on staying in the house for a long period of time it may well be worth it, but if the break even point is after 7 years and you don’t think you will be there for 5 years, it may not make sense.
Most lenders will actually quote your interest rate at PAR. Meaning they are quoting you the lowest rate they have before it becomes a cost to you. For every 0.125% above PAR you will receive a lender credit that you can apply towards your closing costs. The amount of the credit will depend on what the actual credit is at at the time of the lock. By raising your rate .25% you may receive enough of a credit to pay most if not all of your closing costs depending on your loan amount. Again, take the cost of the increase and divide it by the closing cost credit and see how long it will take before you break even. In addition, this will save you money up front and reduce the amount due at closing.
Shopping for a home loan can be a bit overwhelming with so many different mortgage programs, terms and interest rates to choose from.
Always get choices. Look at the cost vs. benefit, interest rate and APR.
Get all of your questions answered, work with someone who can answer them and provide you all of the above.