4 Tips For Finding The Best Mortgage Rates
The choices seem endless when it comes to financing your home (or refinancing your current home loan). So what is the best way to find the ideal mortgage for your particular situation? Read on to find out.
1. Examine Different Mortgage Types
Mortgages are generally divided into two categories: Fixed-rate and adjustable rate, or ARMs.
A fixed-rate mortgage means you pay the same amount each month; that amount remains unchanged through the loan’s 15-year or 30-year term. The advantage of fixed-rate financing is that you can better budget it. But keep in mind that the overall costs are high across the loan’s term, and you’ll be paying down interest for several years before your monthly payments even touches the loan’s principle.
Meanwhile, the ARM’s initial offering is set below market rate interest. That rate increases at a pre-arranged frequency, known as a pre-set. One benefit of an ARM is that you’ll pay less at the beginning of the loan’s life. But keep in mind that “adjustable” means that what you owe will change over the term. Furthermore you could end up paying a lot, depending on interest rates.
2. Research Special Buyer Programs
Many states offer programs to help reduce homebuying costs. Such programs typically combine low-interest-rate mortgages with down payment and closing-cost assistance. These plans are typically geared toward first-time buyers and more often than not, aren’t available for refinance loans. Still, if you haven’t owned a home over the last three years, you could be considered a first-time homebuyer, depending on the requirements.
3. Consider a Larger Down Payment
Finding the ideal mortgage rate with acceptable terms depend on many things, including your income, credit score and down payment amounts. Many lenders and government-backed mortgages allow low down payments (such as 3% down). But consider that the more you put down up front—generally 20%–the more likely the lender will consider you a lower when it comes to repayment. As a result, you could be rewarded with financing at a lower interest rate.
4. Shop Around
Let’s face it: There are a lot of lenders out there, offering all kinds of options. Additionally, banks aren’t the only mortgage lenders these days; credit unions and online lenders are also in the game. So take time to research and compare lenders to determine if what they offer fits your situation.
As an aside, if you’re worried that consulting lenders could ding your credit, don’t. You can check out and apply for as many mortgages as you want as long as that final credit check takes place within 14 days of the first credit check. In this situation, it all shows up as one inquiry on your credit report.
Finally, before starting the lender search, be sure you know how much home you can actually afford. Many websites, such as nerdwallet.com and bankrate.com, offer mortgage calculators that tell you how much you can realistically pay for a monthly mortgage, based on your income and expenses. Knowing how much you can pay can help you find the right financing for you needs.
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