Buying a home is a huge financial commitment, and finding the right mortgage can be a confusing process – especially for first-time homebuyers. Comparison shopping is the key to getting the best deal. Working together, we can analyze your options to see what makes the best economic sense for you and your needs. As you’ll see in this article, when it comes to mortgages, the options can be plentiful.
Here are six important questions to consider when deciding which mortgage is right for you:
1. Should I get a fixed – or adjustable – rate mortgage?
Mortgages generally come in two forms: fixed or adjustable rate. Fixed rate Mortgages lock you into a consistent interest rate that you’ll pay over the Life of the loan.
There are advantages and disadvantages to both, but using the terms of the loan – you can calculate what your payment might look like in different rate scenarios.
2. Should I pay for points?
A point is an upfront fee – 1% of the total mortgage amount. The more points you pay, the lower your mortgage rate. So, which is the best for you? More points and a lower rate? Or fewer points and a higher rate?
To decide, you need to consider:
- Can you can afford to make the upfront payment now for points?
- What length of time do you expect to hold on to the mortgage? The longer you plan to have your mortgage, the more it makes sense to pay for points now because you’ll have a long time to benefit from the lower rate.
3. How much can you expect to pay in closing costs?
Closing costs usually amount to about 3% of the purchase price of your home and are paid at the time you close, or finalize, the purchase of a house. Closing costs are made up of a variety of fees charged by lenders, including underwriting and processing charges, title insurance fees and
appraisal costs, among others. Shopping for the right lender is a good way to save money on a mortgage and associated fees.
4. Do I qualify for special programs?
Before you settle on a mortgage, find out if you’re eligible for any special programs that make home buying less costly. For example: VA loans, FHA loans, USDA loans and first-time home buyer programs on a national and local level.
5. How much down payment can and should I put down?
Generally speaking, a lower down payment leads to a higher interest rate and paying more money overall. If you can put 20% down, you can avoid paying private mortgage insurance, which adds to your overall cost and a higher interest rate. The key is to put down as much as you can while maintaining enough of a financial cushion to weather potential emergencies.
6. What else should I be on the lookout for?
Remember these last tips as you’re buying a home:
- Be sure to compare costs by carefully making an “apples to apples” comparison between each loan.
- Think outside the “bank-box,” and comparison shop with credit unions and on-line lenders.
- Confine your search for a mortgage to a 14-day window. If you apply for mortgages beyond a two-week time period, the credit inquiries could temporarily lower your credit score.
Let’s work together to insure you are aware of your many options, in order to find the best possible loan for your needs.