When searching for mortgages, it’s essential to ask the right questions. From unexpected fees to what type of loan you require, your lender should be available to answer your inquiries and guide you through the process.
Finding the best mortgage rates depends on two things: your credit profile and which loan program you select. Use our rate table to locate lenders offering competitive rates based on your credit score.
Best Rate on a Mortgage
Shopping around for a better mortgage rate doesn’t need to take long, and it could save you significant money over the course of your loan.
Lenders calculate interest rates based on your credit history, financial details and how much down payment you can afford. Before making a final decision, be sure to shop around with multiple lenders for an official Loan Estimate — then compare them.
Your credit score is the single most influential factor that impacts your mortgage interest rate. Lenders use it to assess whether or not you will make timely and full payments on time.
Generally, higher credit scores translate to lower interest rates. You can improve your score by making timely monthly payments, paying down debt and avoiding high credit card balances.
Additionally, the type of mortgage you select and your down payment can affect your interest rate. Shorter-term loans like 15-year mortgages tend to offer lower interest rates than 30-year mortgages.
Borrowers with poor credit and low down payments often benefit from government-backed loan programs like VA or FHA mortgages, which offer more flexibility and lower interest rates than conventional loans – though they may come with extra fees.
How Much Can I Afford?
When searching for a home, it is essential to determine how much you can afford to borrow. This will enable you to determine whether a particular house falls within your budget and also how much interest should be paid each month on your mortgage.
Calculating affordability begins by estimating your income, debts and down payment. Then use a calculator to come up with monthly housing costs – remembering to include the mortgage payment, property taxes, insurance and HOA fees!
Additionally, you should take into account the interest rate you expect to pay on your loan. This can significantly influence how much money you end up spending on a home.
As a general guideline, never spend more than 25% of your monthly take-home pay on mortgage payments. This includes principal, interest, taxes, homeowners insurance and PMI (private mortgage insurance).
What Are the Fees?
Your mortgage may include several fees when you purchase or refinance your home. These usually range from 3 to 5 percent of the loan amount and may include title insurance, attorney fees, appraisals, taxes and more.
Within three days of applying for a mortgage, you should receive two documents from your lender: the Loan Estimate and Closing Disclosure. The Loan Estimate provides an estimated cost for closing costs.
The Closing Disclosure will outline your closing costs, interest rate and monthly payment. These documents are required by law and can help you make an informed decision regarding your mortgage loan.
One of the most frequent fees associated with mortgage loans is a loan origination fee. Lenders typically charge 1% of the loan amount as this fee, which helps cover their administrative costs.
Another commonly-charged fee is a discount point, which you can pay upfront to your lender in exchange for a lower interest rate. This fee costs 1% of the mortgage amount (or $1,000 for every $100,000 borrowed).
Other fees associated with your mortgage include a document preparation fee, which is charged to the title company for creating all necessary documents at closing. Moreover, your lender may require you to purchase one year’s worth of homeowners insurance before closing.
How Long Will It Take to Close?
Once a buyer and seller have signed a purchase contract, it’s time to start closing on the deal. This involves getting your home appraised, signing mortgage documents and agreeing on loan terms.
When purchasing a home with mortgage financing, the closing process can take anywhere from several days to months. On the other hand, if the buyer pays cash, closing can often be expedited quickly – sometimes taking only one week!
But there are a few things that can bog down this process, and one of the primary culprits is paperwork errors. Be sure to respond as promptly and accurately to every request from your lender; doing so will help them stay organized and prevent delays.
Also, look for a loan with an extended rate-lock period so you have some wiggle room in case of a last-minute delay. Having this time can be hugely beneficial to borrowers as it saves them money on interest rates over the life of their loans.
Will I Have to Pay a Prepayment Penalty?
A prepayment penalty is a fee charged by your lender when you pay off a significant portion of your mortgage early, such as when selling or refinancing. These penalties can range in size and are usually calculated based on either a percentage of the original loan balance or on a sliding scale.
Some lenders may impose a fixed prepayment penalty that remains the same throughout your loan’s lifespan. For instance, if you take out a $300,000 loan and pay off the mortgage within three years, then an applied prepayment penalty of $6,000 would apply.
Fortunately, today most mortgages do not include prepayment penalties. Nonetheless, it’s wise to inquire with your lender about a potential penalty before closing on a new home loan.
Furthermore, always read the fine print of any mortgage contract or loan estimate carefully before signing it. Most lenders will include a paragraph regarding prepayment penalties in the document that you sign.
If you plan on selling your home within a few years, it is best to select a mortgage loan without a prepayment penalty. This can make a considerable difference in the total cost of your loan.
Do You Offer Government-Backed Loans?
Are you in the market for a first home or expanding your business? Government-backed loans can provide the funds that you need. Backed by the United States government, these loans come with various advantages like low down payments, relaxed credit requirements and more favorable terms.
These loans can be obtained through several federal agencies, such as the Federal Housing Administration (FHA), United States Department of Agriculture (USDA) and Veterans Affairs (VA). Each has its own advantages and requirements; however, they all work to help you purchase or refinance your home or refinance an existing mortgage.
FHA 203(k) loans offer you the freedom to remodel or renovate your home after purchase. They cover both the original mortgage amount as well as any extra funds necessary for renovations.
These loans may be beneficial for those with high debt-to-income ratios or those looking to purchase a home while prices are rising. Nonetheless, they are not the best solution for everyone and could put your personal assets at risk if you default on your loan.
Are You a Local Lender?
When buying a home, there are plenty of decisions to be made. You need to decide your budget, the area in which you want to live, whether or not you need a fixer-upper or move-in ready house and more.
One of the biggest decisions you’ll need to make is which lender will finance your mortgage. Internet-based lenders have all the hype and promise fast approval for a mortgage. But are they reliable? One major consideration when looking for financing for your home is what type of interest rate suits your situation best.
Unfortunately, banks often don’t have the perfect loan program for everyone. They are typically limited to a select few options and more rigid than local lenders who may specialize in niches bigger banks may overlook.
That is why it is essential to select a local lender. They have demonstrated success and are invested in your community.
Mortgage loan officers are available to approve mortgages for those borrowers who may not qualify with larger banks due to credit scores or other factors. Since they typically have a better understanding of your situation, they may be more willing to work with you than online lenders.
They also boast a reputation for timely loan closings, which is invaluable when purchasing in a seller’s market. Real estate agents who represent sellers on homes you’re interested in often prioritize your offer over others if they feel your lender will meet its deadlines.