Co-op or condo? Ranch or multi-story? New construction or good old-fashioned craftsmanship? Buying a home involves countless decisions—but none may be quite so important as the mortgage and mortgage lender you choose to finance your home.
In fact, most experts recommend that you begin shopping for your mortgage even before you start shopping for your new home. Getting pre-approved for a mortgage by one or more lenders can provide you with realistic budget parameters, give sellers confidence in your ability to secure financing, put you in a better negotiating position, and make closing on your home faster and easier.
The right kind of mortgage and the best mortgage lender for you depends on several factors. You might want to start by contacting your primary bank—the one that provides you with basic savings and checking services—simply because you’ve already established a relationship there. If you belong to a credit union, by all means, explore what they can do for you. Credit unions often offer lower rates than traditional banks because they are non-profit institutions whose primary goal is to serve their members, not meet quarterly revenue standards. They tend to charge fewer and less costly up-front fees. Credit unions are also more likely to approve members whose credit scores are not top-tier.
Working with a mortgage broker can simplify the process of getting a mortgage. They do some of your research for you by comparing rates from several lenders before providing you with mortgage options. They can also streamline the process of mortgage shopping by submitting all the financial documents required for getting a mortgage to multiple lenders for you.
If you’d prefer to let your fingers, not your feet, find you a mortgage, an online lender can help you get a mortgage from the comfort of your desk—or your lap. The largest mortgage lender in the nation is an online lender that receives great marks for customer satisfaction. Online lenders offer quick approval and can sometimes find you a mortgage even when traditional lenders reject your application. Even if you don’t elect to use an online lender, there are mortgage marketplace sites that allow you to quickly compare a lot of lenders and loan types.
Government-backed loans are a great option for homebuyers who qualify. Some, like VA loans, don’t require a down payment or private mortgage insurance (which you’d otherwise need if you are putting less than 20% down on your home). FHA loans are also attractive to buyers who want to put less money down on their homes, with down-payment options as low as 3.5% of the total value of your loan.
The other major decision you will need to make is which type of loan best suits your needs. Adjustable-rate mortgages sometimes charge lower interest rates at the outset of your loan (typically for three years) but your rate is subject to change as the mortgage market fluctuates. Mortgage rates are extremely low right now so getting a fixed-rate mortgage may be a smart move, particularly if you plan on staying in your home for a long time.
Loan terms vary and most lenders offer the options of 10, 15, and 30-year mortgages. The shorter your loan term, the lower your rate will typically be. While shorter terms come with larger monthly payments, if your budget allows you to pay more each month, a shorter-term mortgage will cost you less over the life of your loan.
The most common advice experts offer on getting a great mortgage rate is to get your financial house in order. Your credit score is the first thing lenders will look at and unless it’s truly stellar, you should take steps to improve it before applying for any mortgage. Download a free copy of your credit report and be sure to correct any mistakes you find in it. Paying down high-interest credit cards (thereby lowering your debt-to-income ratio) can also increase your score and help you secure a lower rate.
This post may have raised as many questions in your mind as it has provided answers. Don’t hesitate to bring those questions to your realtor or property group — he or she is a great resource for learning about mortgages and the mortgage shopping process.