If there is one thing that I have learned over my time, it’s that unless you’re a banker or a mortgage loaner, you probably don’t understand everything there is to know about mortgages. In fact, I’m willing to bet that you’re here because you’re looking for a mortgage loaner and aren’t sure where to start. This is where this guide comes in. When it comes to finding a mortgage loaner, it’s important to think everything through properly, which is difficult when you aren’t sure where to begin – so here are our top 10 things you should consider when choosing a mortgage loaner.
A fixed rate mortgage will have the same interest rate for the entire lifespan of your loan, while a variable rate mortgage will have a rate that can increase or decrease – this is usually in relation to a benchmark interest rate such as the prime rate or LIBOR. Which one is best for you will ultimately depend on the economic climate, how long the life of your loan is, and how set you are on believing interest rates will decrease in the future. There will likely be a cap, so it can’t skyrocket too high, but it’s important to be sure that you can keep up with the raised interest no matter how high it goes. Fixed rate mortgages make more sense if you prefer clarity, but it’s ultimately your decision.
If you want good interest rates, chances are you’ll have to pay some form of down payment for your loan. This varies from loaner to loaner, so it’s worth working out what you’re willing to pay in the way of a deposit or down payment before you even begin looking, and then matching a loaner to what you can afford. Some loans won’t require a down payment at all, but you’ll find that these loans come with a higher interest rate because of it. Most loans, however, could require anything from a 3.5% payment to a 25% one. The higher the down payment, the lower your interest rates will be.
When it comes to applying for a mortgage, the closing costs are some of the most important fees you’ll pay in the whole process. It doesn’t matter which mortgage you go for with which lender, closing costs are something that you’ll have to pay out – and likely on top of your down payment. For those of you who don’t know what closing costs are, these costs are all of the fees, costs, prepayments and potentially taxes that it’ll take to issue the mortgage on your home. They include fees to any professionals pulled in during the process, including title companies, surveyors, home inspectors, notaries, lawyers and any other professional whose services might’ve been used in the valuation of your home.
Some loans will require higher closing costs than others, so it’s important to take a good look at each lender and what they charge on average for closing costs. In some cases, you could suffer a higher interest rate for lower closing costs, so the details are something you’ll want to pay full attention to.
Beyond fixed rate and variable rate, there are types of mortgages that will benefit some potential homeowners more than others. Some are run by a federal program, while others are more traditional in style and are bought by investors. To help you out, we’ve laid out the major types to choose from:
Conventional Mortgages – Conventional Mortgages are probably the most common type of mortgage that you’ll find. They can come in fixed or variable interest, and will probably offer different lengths depending on your needs. They aren’t insured by the government, but this does mean that there isn’t as long of a process to get this loan – though you do have to stick to certain regulations all the same.
FHA Mortgages – A FHA mortgage is a loan insured by the Federal Housing Administration (FHA). The down payments are usually only around 3.5% and are fairly easy to qualify for with low closing costs. Sounds great, right? Well, the biggest downside to these mortgages is that you’ll be faced with private mortgage insurance which has to stretch for the entire length of the loan. The upfront fee for this is 1.75% of the value of your loan, and there’s an annual fee of around 0.85% - and these can add up.
USDA Loans – USDA loans are loans that are guaranteed by the United States Department of Agriculture, and thanks to this, you could qualify for a loan with no down payments at all – which once again unfortunately means paying private mortgage insurance. The USDA fees are a little lower than FHA, however, with 1% upfront, and only 035% annually. Oh, and you also have to be in a rural or suburban area and be under a certain income.
VA Mortgages – This mortgage is entirely for members of the military or veterans, and is guaranteed by the Department of Veterans Affairs. There’s no down payment, but a funding fee (or down payment) can reach 3.3%. However, there are no PMI costs, and closing costs are low, which can save you money compared to the FHA loans – especially if you plan to live in your home for a long time without refinancing.
From the moment you walk into a lender’s office, you need to know what the interest rates are expected to be for your loan – yes, even before you work out whether you want to pay fixed rate or variable rate. Interest rates will differ from place to place, so do your research and look around to see which fits your budget best. Most lenders – at least any that are trustworthy – can give you a direct interest rate quote quickly and the APR (annual percentage rate) for your potential loan. In short, this gives you a quick and easy way to compare lenders without going into detail too intensely from the offset.
So we’ve looked at some of the fees that you could incur, but it’s important now to consider whether the fees at each lender are fair or not. You could face any fees and you should ask about potential fees like an application fee, points, credit evaluation fees, loan processing fees, title search fees, insurances, documentation fees, underwriting fees and plenty more. Whether these are fair and just to you depends on your personal opinion to an extent, but it’s also important to remember that plenty of fees you face are “junk fees” – or, in simple terms, a waste of money and time. For lenders with higher fees, make sure you get a rundown of everything that they will charge you for before you pay them a single penny.
We live in a technological age, and with a technological age comes online mortgage lenders. While some won’t risk such a process, some will, and so it’s important to understand from the offset that online may not be the best place to do this. A mortgage is a big liability to take on, so a face to face meeting is vital to ensure that you are understood, and that the entire contract is fair from start to finish. The internet is amazing for searching and even for getting basic quotes, but try and avoid agreeing to any mortgages online until you’ve seen some actual paperwork or a person face to face in a trusted facility.
… Well, sort of. Mortgage brokers are not banks, and so they won’t play by the same rules as a bank either. Countless times people have been baited with one thing and given something completely different, so it’s important to search for the right broker who is trustworthy. There are a few warning signs to help you avoid such a situation: If you’re encouraged to borrow more than you need, turn it down initially and if it’s pushed, walk away. If they try and encourage you to overstate your income, this is a big red flag, or if they try to get you to agree to payments you can’t afford, this is another huge sign you need to walk away. Incorrect documents, blank forms and a refusal to give you copies of documents are other warning signs, so make sure you do your best to spot these warning signs before it’s too late.
Some lenders will offer benefits that others can’t, but be careful not to be drawn into a bad deal due to an additional benefit. Low closing costs could mean higher interest rates, or lower interest rates could mean higher closing costs, or even private mortgage insurance. Look at the mortgage for what it is, and not the decoration that a company places over it to catch your attention. After all, there’s usually something deep in the small print that makes the deal a lot less dazzling than it was at first.
Now this is more of a consideration to take before you even decide you need a loan, but it’s an important consideration to make. Are your personal circumstances in a good enough state to take out a mortgage? Do your morals and wishes match up to taking out a mortgage?
Being debt free is a nice feeling, and for some, the thought of being tied down to monthly payments for the foreseeable future is a suffocating experience that they don’t want to go through. Now, don’t get us wrong, we know that being debt free in this day and age is difficult, so consider asking yourself instead when you want to be debt free. How long do you want your mortgage to span for? 20 years? 30 years? Do you want to be debt-free by the time you retire? All of this can play into which mortgage loaner you go with in the long run depending on what they offer.
Another consideration is whether or not you plan to stay in your home for a long time to come. While most families take out a mortgage with the intention to live in their family homes for the rest of their lives, some might have different plans, or be more prone to drastic changes. If you know you’re likely to need a shorter mortgage, then look for just that, or consider not taking one out at all – it all depends on you and your personal preferences and circumstances.
And finally, it’s worth considering whether you can actually afford the down payment in the first place. While some of us will have savings stashed away, is it really worth spending your life savings on a huge down payment on a mortgage? Or would you prefer a smaller down payment and higher interest fees? Your personal circumstances play heavily into whether or not you can afford a mortgage or which one you get, so make sure you take all of this into account.
Now that you’ve had a thorough rundown of what each loan offers borrowers, we hope that you are now able to make an informed decision about the loan that is best for you and your requirements. The research doesn’t have to end here though, as there are still many things that need to be considered before getting your mortgage loan, such as who are you going to use for your loan? Once you’ve thoroughly considered all of these, and got a couple other things in order, you should be ready – happy moving!