Finding the best mortgage loan that meets your budget needs takes time and effort. Certain steps you take can save you money on loan fees and lower mortgage interest rates. Therefore, it's important to explore the various options available, especially when looking to get a better mortgage deal.
Comparison shop. Check the rates that both larger national and smaller community banks, credit unions, and online lenders offer. Credit unions, which are nonprofit, member-owned financial cooperatives, often offer lower mortgage rates and charge fewer fees than banks that operate for profit.
Find out too what lender fees and other loan costs different lenders charge. Get a statement from each financial institution that you approach outlining all costs–including the interest rate and closing costs–related to the loan so that you can conduct a more accurate comparison.
Consult a mortgage broker. If you don't have the time to shop for a mortgage loan yourself, a mortgage broker can look for the best loan deal for you by comparing loan packages and terms offered by multiple lenders. While a particular lender can explain the specific loan options and programs it offers to meet your financial needs, a mortgage broker can provide information about the options that many different lenders offer. Mortgage brokers charge commissions; therefore, be sure that all fees are disclosed in writing upfront.
Make a higher down payment. Although minimum down payment requirements vary by loan programs and lender, the more money that you can put down on a home's purchase price, the lower the interest rate a lender will offer.
Keep in mind that if you apply for a loan that accepts a lower down payment to save on upfront loan costs, you have to pay private mortgage insurance (PMI) to cover the lender's risk if you default on the loan. A lender generally requires private mortgage insurance when the property you are buying has less than 20 percent equity at financing. PMI increases your monthly mortgage payment but is canceled once your outstanding loan balance drops to 78 percent of the home's appraised value at the time you take out the loan.
Consider paying for discount points. A point–which equals one percent of the loan amount you want to borrow–lowers the interest rate and therefore the monthly mortgage amount you pay.
While paying points upfront gets you a mortgage at a lower rate of interest, it only saves you money if you plan to live in the home long enough to recover the interest you prepay. Generally, paying points lowers the interest rate on a loan by one-eighth to one-quarter of a percentage point for each point you pay. Discount points are also tax deductible if you itemize deductions on your federal income tax return.
Take out a shorter-term loan. Although you will pay a higher monthly payment, if you can afford the cost, you'll pay less in interest over the life of the loan. A 30-year mortgage plan may offer lower monthly payments, but lenders charge higher interest rates for longer-term loans.
Look into special programs. You may qualify for a VA home loan, FHA loan, USDA loan, or first-time home buyer program. These home loan programs generally offer low- or no-down payment loans, will accept lower credit scores, and often help cover closing costs.
Local and state housing agencies offer other home buyer assistance programs like down payment assistance programs. You don't necessarily have to be low income to qualify. As long as you qualify for a mortgage loan but don't have money for a down payment, you may be eligible for assistance. For more information, contact a company like I Want A Better Mortgage.Share