What To Consider When Shopping For Mortgages
Are you thinking about purchasing a home? If so, then here are the questions you need to consider before you start shopping for a mortgage.
What type of lender do you want to use?
Mortgages are available through a wide variety of sources. You can obtain a home loan directly through lenders such as credit unions, mortgage companies, and commercial banks.
You can also use a mortgage broker, who can contact lenders for you and present you will several different offers. If you use a broker, however, they will usually charge an additional fee for their service.
It’s best to get quotes from several different lenders and/or brokers and compare them to find the best available options.
How much do you have for a down payment?
It’s generally recommended that your down payment be at least 20% of the cost of the home. If your down payment is less than 20%, you’ll probably need to purchase mortgage default insurance, which can be expensive.
The amount of down payment also affects the amount you’ll end up financing. The higher your down payment is, the less you have to borrow, and the less you borrow, the lower your monthly payment will be.
What’s your credit score?
You should know what your credit score is before you begin shopping for mortgages. Knowing your credit score will help give you an idea of the interest rates you may be offered.
The most common credit score used is the FICO score, which ranges from 300 to 850. If you have a low FICO score, be prepared to pay a higher interest rate on your loan.
It’s a good idea to check online interest rate calculators before you begin shopping so you know approximately what rates you can expect.
What type of interest rate do you want?
There are several different types of interest rates, the two most common are fixed and variable rates. With a fixed rate, the interest rate will remain the same for the entire term of the loan.
A variable rate can change over time, either increasing or decreasing depending upon the market. Though less common, you may be offered a hybrid rate, where part of the loan amount is financed at a fixed rate and the remainder is financed at a variable rate.
How long should your mortgage term be?
The term of your loan is how long your mortgage agreement will be in effect. A long-term loan may be best for you if interest rates are currently low and you intend to stay in your home for many years.
If you plan on moving in a few years or hope to get a lower interest rate in the near future, then a short-term loan might be a better option.
What type of loan should you get?
Most lenders let you choose between an open or closed type of mortgage. With an open mortgage, you are allowed to make extra payments on your loan.
If you think you may want to pay your mortgage off early, then an open type is best because there is no penalty for prepayment. If you opt for a closed mortgage, then you may have to pay a prepayment charge for making extra payments.
There are many factors to consider when shopping for mortgages. Educating yourself about home loans and the different options available is the best way to improve your mortgage shopping experience.