During this hot housing market, there are so many offers and so many lenders who are pushing their products. Since there is a lot of competition when it comes to lenders, take time to comparison shop. Remember, there are several things to consider when choosing the best rate and lender. You need to do your due diligence considering this is one of the single largest financial transactions you will make in your lifetime.
Comparison Shop for Mortgages
Just like you comparison shop for a car, or any other big purchase, you will want to look at all your options. According to the Consumer Financial Protection Bureau (CFPB) almost half of those that were getting a mortgage only looked at
one lender and 77% applied with only one lender (January 2015).
“Shopping is important not only to help borrowers understand the different product features available, such as adjustable -rate versus fixed-rate, but also the price at which those products are offered (including the prices of ancillary services, like settlement services or title insurance),” CFPB advises.
When shopping for mortgages there are several avenues to take. Take to the internet, and search phrases such as “mortgage rates” which will pull up lenders in your area so you can compare their rates and incentives. Contact banks, credit unions and mortgage bankers and see what kind of financing and incentives they have to offer. Word of mouth is also a good way to go, by asking friends, neighbors, or relatives. So you can compare apples to apples, make sure to tell each lender the same information. Also not only compare rates but also compare each lender’s loan estimate.
Lenders do have some fees that might not be apparent. Mortgage points which are also called discount points are fees that are paid to the lender directly during closing. For these points, a lender will drop the interest rate on your loan. This is referred to as buying down the rate.
For example, a point will cost you 1% of your mortgage amount, so if you have a mortgage for $200,000 one point will cost $2,000. For that point, it will save you around $25 a month on the $200,000 loan. It will take around 6 1/2 years to recoup the cost for just one point. This means you should probably go that route when you are going to stay in your home long-term. So if you stay in your home for 15, 20, or 30 years, you could save thousands over the life of your mortgage.
In the past, everyone said a 30-year fixed rate mortgage with 20% down is the safest way to go. This is not the case in the current market as lenders are okay with shorter-term fixed-rate loans and variable rates. A 15-year fixed-rate mortgage can be a better deal sometimes than a 30-year. In 2017 a 15-year mortgage rate was half a point lower than a 30-year rate mortgage. If you go this route, you will build equity faster, finish paying off earlier and pay tens of thousands less over the lifespan of the loan. The only negative about a 15-year vs 30-year is your monthly payment will be much higher.
Instead of a fixed rate, there are variable interest rate loans that you can go with. These rates are also referred to as adjustable rates and can sometimes be much lower than the rate on a fixed mortgage. There is a catch, that is the rate will adjust over the lifespan of the mortgage to the current published rate. This will happen either 5,7 or 10 years after the start of the loan. These loans could be to the advantage of those that aren’t going to stay in a home for a long period of time and for those who know they will get an increase in the annual income each year.
The type of home can also affect your interest rate. Buying a single-family home will get the lowest interest rate. The reasons are usually there is more stability in single-family homes and they usually increase in value more. So, if you are in the market for a new home, then talk to a local agent about getting the process started.