5 things to consider before choosing a mortgage

Sep 16, 2016

A mortgage is a long-term commitment that new homeowners should enter into carefully.  Regrettably, in the rush to move into a new home, some future homeowners neglect to investigate the best options for a mortgage; which is a devastating financial mistake that can cost the owners thousands of dollars. Below are five things to consider before choosing a mortgage:

1.A Good Credit Score Gives The Buyer Power to Negotiate Lower Interest Rates

Choosing a mortgage

The most powerful determinant of your mortgage rate is your credit score, so it is crucial that you obtain a copy of your current credit report before you shop for a mortgage. A good credit score will help you demand the best terms and interest rates for your new loan. Generally a credit score of 740 or higher qualifies a borrower for the best interest rates. Lenders suggest you check your credit report a year before buying a home, so you have time to improve your score and correct errors before shopping for a mortgage.

2. Acquire a Good Faith Estimate from the Lenders

Choosing a mortgage

A Good Faith Estimate (GFE) is given from the lender to prospective home buyers upon completion of a loan application. A GFE is a breakdown of all potential costs and terms of a mortgage loan and is essential when comparing mortgage contracts between lender. Importantly, a GFE does not obligate borrowers to accept the loan. It merely helps borrowers compare costs of loans.

3. Compare Monthly Payments and Loans Costs Between Mortgages

Choosing a mortgage

The actual monthly payment you will pay for your mortgage is based on the interest rate (expressed as a percentage) on the amount of money borrowed. The total cost of the loan is determined by the annual percentage rate (APR) (expressed as a percentage)  and includes the interest rate, broker fees, discount points, and some closing costs. The APR is usually higher than the interest rate because it contains all of the loan costs. Typically, the higher the APR, the higher the payments over the life of your home loan. Understanding and knowing both the interest rate and APR is critical when choosing the best mortgage.

4.A Large Down Payment May Lower Your Interest Rate

Choosing a mortgage

A conventional loan is not insured or guaranteed by the federal government and requires 20 percent down of the home’s price.  Buyers, however, can obtain an insured mortgage for as little as five percent down, but they must pay mortgage default insurance when the down payment is less than 20 percent. The insurance is a one-time charge paid at closing or added to the mortgage balance. New federal rules also mandate larger down payments for properties over $500,000.

5. Closing Costs Should be Carefully Compared Before Selecting a Mortgage

Choosing a mortgage

Lenders charge one-time fees for a variety of administrative expenses. These are the closing costs and typically represent about 3 to 4 percent of your home’s total sale price.  Many of these fees vary between lenders and should be compared before choosing a mortgage.

  • Points, which will reduce your interest rate
  • Credit report fee
  • Underwriting
  • Appraisal fees for your home and title insurance and points.
  • Loan application and processing fees
  • Title search and insurance
  • Documentation
  • Escrow fee
  • Prepayment penalty if you pay the loan off early

The challenge of finding the right mortgage lender can be time-consuming and tedious.  But it is one of the most important financial decision you will make in your lifetime and well worth your efforts It is crucial to know your financial status and then carefully compare lenders fees and requirements before choosing a mortgage. The results of your work will potentially save you thousands of dollars over the life of your loan. For more information on things to consider before choosing a mortgage visit Marlin Spring.