How to Get the Best Mortgage Rate
You’ve found the perfect house and fallen in love with the neighborhood. You’re ready to buy. But before you pick out the paint colors and call the movers, you’ve got to get your financing in place.
But finding the best mortgage rate can be stressful. Just remember: it’s a process like any other.
Preparation is key. You’ll want to research potential lenders and be sure you understand the many factors that go into negotiating the most advantageous terms. Start by reviewing the major provisions of the most widely used types of home loans.
FHA vs. Traditional
FHA loans are insured by the Federal Housing Administration. These government guarantees help streamline the application process. Typically, borrowers must make a down payment representing 3.5 percent of the purchase price. They must also agree to pay for mortgage insurance. FHA loans are popular with many buyers because they can qualify despite having earned a low credit score — even one as low as 500. (However, be aware that lenders may require greater down payments, up to and including 10 percent, in such circumstances.)
Traditional loans are not government-secured, but their terms are often more flexible. Loan amounts are uncapped, and lenders are not required to purchase mortgage insurance. On the other hand, traditional loans adhere to stricter credit standards, and down payments can average in the range of 20 percent.
Both FHA and traditional loans require proof of the borrower’s steady work history and income. They may also include additional contingencies based on the condition of the home being purchased.
Your Mortgage Lender
Your initial lender will more than likely sell your mortgage to another bank, sometimes within the first 72 hours of you signing all the closing paperwork. This should be no cause for alarm. Ultimately, who holds your loan is less important than the loan’s actual terms.
Getting the best terms is often a matter of sort and comparing your mortgage options. Many websites, whether associated with lenders or third parties, provide these services. Feel free to utilize them all for your initial research.
Eventually, you will want to speak with a mortgage representative. Limit your scope at this stage of the process. Contact only three lenders at a time. Any more and you risk becoming overwhelmed with alternatives.
Qualifying and Pre-Qualifying
What can you expect from these conversations? You will need to have your personal information at the ready: your legal name, your Social Security number, your marital status, your (combined) annual income, the cost of the home itself, and the amount of down payment you plan on placing.
Once you have exchanged vital information, ask the lender for all of their disclosures. These documents specify what your term (15-year, 30-year) and interest rate (fixed or adjustable) will be. With that knowledge, you can narrow down your analysis and find the mortgage that best accommodates your present as well as your projected financial circumstances.
Finally, if possible, get pre-qualified for a mortgage to get a better sense of what homes are actually affordable for you. Just because it’s your dream house doesn’t mean it’s worth risking foreclosure by incurring debt you might never be able to repay. If you are ready to make a formal offer, you can also use pre-qualification to your benefit and speed up the closing process.
Regardless of which mortgage option you choose, always remember to comparison shop and to stay within your budget!