Applying for a mortgage on your home is more than just going down to your bank and taking the first offer given to you. It is best to shop around so you know you are receiving the best offer to invest the largest amount of money you will probably ever spend. As you are shopping around and look at all of the options available to you, how do you decide what is the best one?
Here are six steps to finding the best mortgage for you:
Go Over Your Finances and Decide What You Can Afford
It is smart to know just how much home payment is healthy to add to your monthly bills. What you qualify for and what you can afford may be two different numbers, so don’t rely on what is being offered to you as affordable because the bank trusts you with that much. Go over your monthly income and subtract your expenses, then factor in unexpected emergency costs, as well as any fun things you enjoy doing. How much money do you have left? Account for putting some of that money into savings and retirement then what is left is a good estimate of what you can comfortably and smartly afford. This will allow you to live life without worrying where the grocery money or utility payment is going to come from.
Plan to Save Money for Fees
In addition to qualifying for a loan you will need to contribute a down payment and pay closing cost fees. To get a better rate on a loan it is helpful to show you are being responsible with the purchase process and have saved money in the bank in preparation for these fees. This will help you to receive a better offer.
Consider the Length of the Loan
Though the traditional mortgage term is 30-year fixed rate, there are other terms available including 10 and 15 year loans. Some banks are now offering “pick your own term” loans. Though you pay more interest over the life of a 30 year loan, keep in mind you will make higher monthly payments on a shorter term loan to enable you to pay the amount off more quickly. If you are able to afford a higher payment it could be beneficial in a lower interest rate and less overall interest paid.
Know How Interest Rates Work
The interest rate is essentially the price the bank charges you to borrow their money. If the bank just lent the money for free there would be no incentive or interest to loan it. Mortgage rates all stay right around the national average, but that average can change a lot. The rates each bank will offer will slightly differ as well.
A fixed rate mortgage will have a higher interest rate than an adjustable rate loan, but allows you to lock in the current offered rate for the life of the loan. An adjustable rate mortgage will reset once a year to the current average and runs the risk of getting higher.
To determine which type of rate loan is better for you, ask yourself how long you plan to be in the home. If you plan to move out of the home before the adjustable mortgage rate loan is set to adjust it may be better to choose the lower rate adjustable loan. If you plan to stay in the home for the foreseeable future a predictable fixed rate loan is the better way to go.
Consider a Mortgage Broker
A mortgage broker will do the work of shopping around for the best mortgage offers you could qualify for. They will advise you on what is available to you and help to explain all of the details and go over any questions you may have about each loan being offered. They are a one stop shop to look at several different options. It can save you a load of time researching individual loans and money finding the best option for you.
For help finding a mortgage in California please contact me any time. See More Tips for Home Buyers Below
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- How Does a Mortgage Loan Officer Get Paid?
- What is a Mortgage Rate Lock?
- How Working with a Broker is Different from a Lender
- No Closing Cost Refinance
- What You Need to Know About an E-Closing
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