Updated: Oct 8
Getting a mortgage in today’s world seems a lot simpler than it did 5-10 years ago. You just give your basic information to a lender online and within a matter of minutes you’re given a variety of home loan options. But is it really that easy? And if so, does easy always equal savings or even make sense? Probably not.
Buying a home doesn’t have to be complicated but it should entail more than just a click of a button. We’re talking about your finances here—not an online order from Amazon!
Do Your Homework
Comparing loans is one of the smartest things you can do as a home buyer. You may be a first-time home buyer trying to figure out various down payment options, a veteran, want to live in a rural area, or just looking to purchase in a traditionally expensive area of the U.S. What is comes down to is there are no two home buyers are alike and you need to increase your chances of getting the best loan terms for your situation and finding a loan that helps you buy a house affordably.
Consider Taking More Time
Everything moves at a fast pace now days. But faster isn’t always better. You need to take the time to look at loan comparisons side by side. To compare accurately you need to look at:
Interest rates: The cost you’ll pay each year to borrow the money on your home loan. In this case, the lower the interest rate percentage, the more you’ll save over the life of your loan (which is a good thing, of course). Many homeowners choose to “lock” their interest rates 60-90 days before closing on their home loan to avoid potentially rising rates.
Mortgage points: Mortgage points are also referred to as discount points. It is a charge that you may incur based on the interest rate you choose and/or the terms of your loan, credit score, etc. One discount point is 1% of your total home loan amount. For example, on a $300,000 mortgage, 1 point would cost you $3,000 directly out of your pocket on closing day. Keep in mind, this money is in addition to your down payment and adds to your total closing costs. It’s also important to note that paying 1 discount point does not equate to a 1% lower interest rate. The charge for discount points may differ between loan programs and lenders. You can pay mortgage points and not get any reduction on your interest rate so you really need to pay attention to the fine details to understand why a rate may have discounts points and other rates may not.
Down payment: This is the cash you’re putting up front on the final price of your home before your mortgage starts. Putting 20% down will help you avoid paying mortgage insurance in most cases, but it doesn’t mean you need to put all your cash in hand toward your down payment. Anywhere from 3-10% down could be your best bet. Talk to your Home Loan Specialist to see what works best for your situation.
Closing costs: When you’re buying a house or getting a mortgage refinance, closing costs are part of the contract. The average home buyer pays about 2-5% of the loan amount in closing fees. So, what’s included in closing costs? Usually you’ll have a variety of fees such as: your application fee, attorney’s fees, administrative or processing fees, insurance fees, property taxes, and expenses from the title company.
Origination fees: Origination fees are charges that you will pay for a lender to originate your loan. They are not upfront fees – they’re paid on closing day. One lender may quote you a lower interest rate to frame their loan to be more appealing, however, that lender may also be charging higher origination fees to compensate for the lower rate.
When comparing quotes from different lenders, the best thing to do is to look at Section A of your Loan Estimate to really understand what each lender is charging.
Click here for a sample of a loan estimate.
Customer satisfaction and referrals: Customer service is key when getting a home loan. It’s a scary thought to leave the biggest purchase you may ever make in the hands of someone who may not know what they’re doing. It’s always good to check out testimonials on Google or a social media channel about lender capabilities and timeliness of closing.
Long-term goals: Communication is important not only during the mortgage process but also after you close on your home loan. Make sure your lender checks in after you’ve closed to ensure that your mortgage is still working for you to help build wealth and make progress toward your long-term goals. A short 10-minute call to touch base could end up saving you thousands if your financial goals change or if the real estate market changes drastically from the time you originally purchased your home. It’s always nice to have someone on your side and looking out for you.