What To Do When Mortgage Shopping
One of the biggest mistakes that buyers typically make when shopping for a home is not shopping around for mortgages.
It’s pretty ridiculous to think that people don’t consider the mortgage loan to be just as important as the home itself. Imagine making a payment every month for the next 30 years and you don’t take the time to make sure it’s the lowest possible payment with a good interest rate.
Our best advice is to shop around for loans the right way before making a final decision. Here are some steps to follow when mortgage shopping:
- Understand the Mortgage Application
We recommend getting a mortgage pre-qualification letter before ever going out to look for homes. You can do so by calling your bank. They will provide you with a letter for your realtor that tells them what kinds of homes you can afford based on your assets, income, and debts.
Once you make an offer on a home, you can get a pre-approval. This is when the bank runs your credit to decide whether or not you can move towards closing or not.
This is the part when everything comes together and your mortgage is finalized. You are now a homeowner.
- Getting The Right Loan
There are different types of loans out there, each of which has unique qualities. It is up to you to understand the different kinds of loans and find the best for your situation. Here are the most common loan types:
FHA Loans are backed by the Federal Housing Administration. They typically require a 3.5% down payment for those who qualify. They’re perfect for people without large cash reserves.
Conventional mortgage loans require a 20% down payment at least, though you don’t have to pay monthly private mortgage insurance payments. They’re perfect for people with savings.
VA Loans are backed by the Department of Veterans Affairs and require little to no down payment for qualified veterans.
- Review Your Financing Options
You will likely be shopping between fixed-rate mortgages and adjustable-rate mortgages. Fixed-rate mortgages will never fluctuate over the loan’s term, perfect for those who want predictable monthly payments. On the other hand, adjustable-rate mortgages will fluctuate according to an index. They usually offer lower introductory rates, though the rate is subject to change as time moves forward.
- Contact Several Lenders
As a borrower, you need to understand the pros and cons of different lenders and mortgage products that are on the market. You can either pay a mortgage broker to find suitable lenders for you, or you can do your homework and call the lenders yourself to avoid paying fees.
Shopping for the best mortgage rates isn’t difficult, though it does require a bit of focus and discipline. You need to understand the risks that you are taking, as well as the proper terminology, so that you can factor all of the pieces into the equation. Mortgages will live with you for many years, meaning it is important to be wise when selecting one.
Do you have any tips for mortgage shopping? Let us know in the comments!