When buying a home, the neighborhood, the physical condition of the property, the layout and the price naturally top your list of attributes. However, selecting the most favorable loan and terms, as well as a lender you trust, are crucial elements of the home buying process and should also be added to your list. Here’s how to get the mortgage that meets your needs.
How do I know which mortgage loan is right for me?
You shouldn’t pay more for a home than you have to. A little research will help you discover how much borrowing from a lender will cost. One way to keep more money in your pocket is to find a low-interest-rate-mortgage. A lower rate means you’ll pay less over the term of the loan.
Also, consider what type of rate you’re getting. Is your interest rate fixed, adjustable or balloon? A fixed-rate mortgage means your rate doesn’t change over the life of the loan. Your payments are split into equal monthly payments.
With an adjustable rate mortgage (ARM), you may start with a rate lower than a fixed. ARM rates could adjust up or down every few years. There is often a cap on how much the rate could adjust.
Balloon rates allow you to save on your monthly payments upfront, then pay a larger lump sum payment — or balloon payment — when your loan ends.
If you’re a first-time homebuyer, you’ll often discover many special incentives and programs to buy a home. A First-Time Homebuyer’s Loan typically comes with a competitive rate designed to attract first-time buyers. Benefits include low- or no down payment requirements as well as programs to help you offset down payment or closing costs.
Lastly, when searching make sure you’re comparing apples to apples. Even with the same interest rate, monthly payments can vary significantly depending on the terms of your loan and annual escrow changes. Things like homeowners insurance and property taxes could affect your payments.
A mortgage calculator can give you an idea what your payment might be or help you compare two loan options.
Closing costs and other fees
Closing costs can add on about 2% to your overall mortgage costs. Other expenses could include home or pest inspections, and appraisal fees. Make sure you anticipate and budget for these fees.
How do I know what mortgage lender to use?
Do you prefer to work with a smaller lender with a great rate who will take the time to get to know you? Or is your priority getting the best rate with less personalized service? You can ask friends, family or your real estate agent for referrals. Then check online review sites and see what others have to say about the lender. You should feel comfortable with the lender and the mortgage you choose.
The advice provided is for informational purposes only.
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