Location, school ratings, number
of bedrooms, outdoor spaces. These are the things potential homeowners focus on
when they start house hunting. They’re all important factors, for sure. Even
more crucial: How will you pay for your home?
Best Home Loan is not a one-size-fits-all proposition. They differ
based on their type, such as fixed or adjustable rate, and their loan term.
Loans also vary in interest rate and annual percentage rate (APR).
To ensure you’re getting the best
home loan for your situation, you’ll want to do your homework, talk to
reputable credit counselors and lenders and follow these tips:
Fixed or adjustable?
There are two main types of
mortgages: fixed rate and adjustable rate.
Most homeowners today opt for
fixed-rate mortgages. With a fixed-rate mortgage, you are locked in to a set
interest rate, resulting in monthly mortgage payments that remain the same for
the entire term of the loan. The No. 1 benefit of this type of mortgage is
inflation protection. If mortgage rates go up, your rate will not follow suit.
Conversely, if rates drop, your interest rate will not drop. (Of course, you
could refinance your mortgage if rates dropped significantly.)
Most lenders offer 15- and
30-year fixed mortgages, and some also offer 20-year terms. The longer the term
of your fixed mortgage, the lower your monthly payment because you’re paying
over many years. With a 30-year term, however, you will end up paying more
interest over time.
A 15-year fixed mortgage will
have a higher monthly payment because you’re paying for fewer years. On the
other hand, you’re building equity at a faster rate and will pay less interest
over the life of your loan. The shorter the term of your loan, the lower your
interest rate will likely be.
An adjustable-rate mortgage (ARM)
is a loan with an interest rate that will change over the life of the loan.
ARMs have adjustment periods that determine how often their interest rates can
change and they have initial “fixed” periods during which their interest rates
won’t change at all — most often 3, 5 or 7 years. After this period, rates can
readjust. These loans are often considered riskier because the interest rate
and payments can increase when the loan adjusts. However, if you’re planning to
live in your home for a shorter period of time, these loans may make sense for
you, especially because you’re likely to obtain a lower interest rate than with
a fixed mortgage.
Clear up your finances and credit
rating
Even before you start shopping
for a mortgage, you need to take a good, honest look at your finances Opens a
New Window. . Most financial experts agree that your mortgage payment —
including taxes and insurance — should not exceed 30 percent of your take-home
pay. Yes, you may get a raise down the road — or you may not. Your mortgage
payment should correspond with your current financial reality.
You’ll also want to check your
credit rating. Why? Because your credit rating may be the most important piece
of financial information you have to obtain a mortgage at the best possible
interest rate. Checking your credit rating before you find your ideal home will
give you time to correct reporting errors and to clean up less-than-spectacular
ratings. It can take up to 90 days to get erroneous information off your
report, so don’t delay.
Shop for several quotes
Best Home Loan
is available from commercial banks, mortgage companies, thrift institutions and
credit unions. You’ll want to get quotes from several different lenders to make
sure you’re getting the best price. If you don’t want to shop for loans
yourself, you may decide to work through a mortgage broker. Rather than lending
money directly, brokers find lenders for clients. Working through a broker may
give you access to an even broader selection of loan products and terms.
Brokers are not obligated to find the best deal for you unless they have a
contract with you and are working as your agent. Consequently, if you go the
broker route, you’ll want to talk with several, just as you should with banks
or credit unions.
Get ratings and reviews
After you’ve narrowed down the
list of lenders or brokers you’re interested in working with, you should check
into their backgrounds. How long have they been in business? If found online,
are they accessible? Can they provide third-party reviews and ratings? This
unbiased feedback from people who have worked directly with the lenders can
prove invaluable when separating the great from the not-so-good.
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