Purchasing a home is the arguably the biggest financial investment you’ll ever make. You will be paying off the loan for years, so it’s vital to get the best rate possible with a reputable lender to possibly save you thousands of dollars.
Before Applying for a Mortgage
There are several variables that play into how much you’ll end up paying for your home mortgage. Check your credit score before you apply for a mortgage. The higher your score, the lower the risk you are to the bank of defaulting on the loan and, thus, the lower your interest rate. There are several companies which allow you to check your credit score for free. Some things you can do to improve your score are to pay off revolving balances, don’t be late on any bill payments and don’t open a new credit card just prior to applying for a mortgage. You’ll also want to be sure to have a solidly funded savings account. If you don’t put 20 percent down on your mortgage, you may be hit with additional costs in the form of private mortgage insurance (PMI).
Benefits of Online Mortgage Lenders
Deciding who will fund your mortgage is a huge decision, and choosing the right lender can save you thousands of dollars. One newer trend in mortgages is online lenders that let you complete all of the paperwork from the comfort of your home. There is a lot of competition in the online market, so these lenders tend to offer lower interest rates and more flexible terms in order to stand out. Because online banks don’t have the overhead of traditional brick-and-mortar banks, you’ll generally pay less on closing costs. Online mortgages can be good choices for people with lower credit scores. Because they don’t use the same stringent underwriters as the big banks, you may be more apt to qualify for a loan.
Negatives of Online Banks
There can be a higher chance of fraud with online mortgage lenders, and you might encounter scams, too. Make sure you do a fair amount of research before you choose a lender. Don’t pay for a pre-approval or quote. There are real costs involved with applying for a mortgage, like your credit check and appraisal, but you should not pay these until you’re further along in the process. Some online lenders will try to tease you with very low rates to entice you into applying for a mortgage, and then tell you that rate is no longer available once they have your application in hand. Ask plenty of questions regarding your lender’s availability via live chat or phone in case you need any help in filling out the lengthy mortgage application. Sometimes you need to communicate with a human to make sense of all the paperwork.
Traditional Banks
If you go with a bank or credit union, you’ll likely have multiple face-to-face meetings. This can be reassuring if it’s your first time getting a mortgage or you have a lot of questions. Traditional banks have the added bonus of name recognition and stability. For many borrowers, it’s nice to have the peace of mind to know they can go speak with someone in person about their mortgage.
More Decisions About Your Mortgage
Once you’ve decided which lender you’re going to use, you’ll need to decide which type of mortgage is best for you. Are you eligible for a VA loan? Should you choose a 30-year term or a 15-year? Do you prefer the stability of a fixed rate, or can you stomach an adjustable-rate mortgage? These are just some of the things to consider when choosing a mortgage.
