Buying a house has always been complicated, but the recent U.S. tax overhaul adds another wrinkle to the process: By summer 2019 house prices may be 4% lower than they would have been originally, but a lot of homeowner-friendly tax deductions will disappear. It’s never been more important to find the most favorable mortgage rate.
Here’s how to find the best mortgage rate
Multiple factors affect your mortgage rate, including the mortgage type, your credit score, and your down payment. And if you’re using a real estate agent, you’ll likely be directed to a handful of preferred lenders, regardless of whether the rates are competitive.
That’s why it pays to comparison shop as much as possible. Use the tool below to help you find the best mortgage rate for you.
Mortgage Rate Comparison Tool
Don’t forget about mortgage disclosure rules
Lenders are required by law to provide a Good Faith Estimate — a document that outlines your potential loan’s terms and costs — within three business days of your loan application. Use this estimate to make a better apples-to-apples comparison of your options.
More tips to help you score the lowest mortgage rate
Polish your credit score
It’s simple: Your credit score tells lenders how responsible you are, so the higher your score, the better your chances of securing the cheapest mortgage rate. Raising your credit score takes time, but the benefits to your financial health can be enormous — especially your ability to find the best mortgage rate.
For example, according to the rate calculator at myFICO, I could pay as little as $1,370 a month on a $300,000 home loan in North Carolina with a credit score higher than 760. My interest rate would be just over 3.6%. With a score of about 680, I’d be paying $1,438 a month at an interest rate of approximately 4.03%. And with a score of 620, I could be spending as much as $1,653 a month at an interest rate of more than 5.2%. With the lower credit score, I’d be paying $102,100 more in interest over the life of the loan.
Beef up your down payment
Saving up for a 20% down payment (that’s what we recommend) can be painfully tiring, but it’s one of the most impactful ways to get the lowest mortgage rate and save you a lot of money down the road. Plus, if you put down enough, you won’t have to pay mortgage insurance.
If I put $40,000 down on a $200,000 home in Nashville, Tennessee (20%), I’d pay as little as $730 a month in mortgage payments, according to this Bank of America calculator. This assumes a 4.05% APR, solid credit, and a fixed 30-year loan. If I could scrape together only $25,000 (12%), I’d suddenly be paying $823 a month. And then there’s $70 a month in mortgage insurance, which I’d have to pay since I couldn’t put 20% down. That brings my monthly payments to just under $883.
Consider how long you’ll be in your house
If you don’t plan on living in your new home for more than a few years, adjustable-rate mortgages might make more sense. Adjustable-rate mortgages (ARMs) have low initial interest rates that increase significantly after a specified period. Many homeowners have been able to take advantage of those low rates by selling their homes before rates increased.
If ARMs seem like too much of a risk to you, look seriously at a shorter-term fixed rate mortgage. Your monthly payments will be bigger, but you will score a much lower interest rate, pay much less over the life of the loan, and build equity much faster.
Finding the best mortgage lenders
Here are three tips that will help you find lenders not only with the best home loan rates; but those with seamless customer support too.
Do your homework
Reading through comments sections isn’t a bad idea, but you should probably take those experiences with a grain of salt. We recommend balancing out your research with insight from a recognized leader like J.D. Power and Associates. Its 2017 annual mortgage lender customer-satisfaction survey found Quicken Loans had the most satisfied customers, followed closely by other industry heavyweights like USAA, Capital One, BB&T, and U.S. Bank.
Ask friends and family about their experiences
Local lenders might not have a helpful presence on the web, so asking around can be crucial in helping you find the best mortgage companies in your area. Conduct a quick survey of your family and friends, primarily if they’ve recently purchased or refinanced a home. Ask whether they felt they understood the lending process and whether their agent was responsive and courteous.
Take note of how you’re initially treated
Your mortgage might be the most significant financial transaction of your life, and you should feel comfortable with your lender. If you call for information and don’t receive it quickly, consider that a red flag. Any lender who is unwilling or unable to answer your questions — or acts like it’s an inconvenience to do so — will probably be less than pleasant to deal with further down the line.
Common types of mortgages
A fixed-rate mortgage with a 20% down payment isn’t the only way to finance a home purchase. Before you pull the trigger, consider a few of the most common types of mortgages and determine which one could offer you the most benefit.
What is a fixed-rate mortgage?
A fixed-rate mortgage (FRM) is the most common type of home loan. One of the main benefits is that even though the proportion of principal versus interest on your bill will change over the course of the loan, you’ll still pay the same amount every month. Your interest rate is locked in when you close on the loan, so you aren’t vulnerable to sudden increases in interest rates.
Of course, while you aren’t vulnerable to interest-rate increases, you’ll lose out if rates decline — you’ll be stuck paying the higher rate. It can also be harder to qualify for a fixed-rate mortgage if your credit score is less than stellar. Down payments are typically high, too, with most lenders requiring 20% of the loan to avoid pricey mortgage insurance.
Fixed-rate mortgages are offered for 10-, 15- or 30-year terms, with the latter being the most popular choice. Longer terms mean lower payments, but they also mean it will take longer to build equity in your home. You’ll also pay more interest over the life of the loan.
What is an adjustable-rate mortgage?
ARMs make buying a home more accessible by offering lower down payments, lower initial interest rates, and lower initial payments. The interest rate remains constant for a certain period of time — generally, the shorter the period, the better the rate — then rises and falls periodically according to a financial index.
The main downside is obvious: If your ARM begins to adjust when interest rates are climbing, your escalating payments could start to squeeze your budget. It can also make annual budgeting tricky, and if you want to refinance with a fixed-rate loan, the cost can be quite steep. Ultimately, with an ARM, you’re accepting some of the risk that your mortgage lender would absorb with a fixed-rate loan.
There are several kinds of ARMs. One-year ARMs typically offer the best mortgage rates, but they’re also the riskiest because your interest rate adjusts every year. At slightly higher rates, hybrid ARMs offer an extended initial fixed-rate period. Common hybrid loans include 5/1 mortgages, which offer a fixed rate for five years and then and an annually adjustable rate for the next 25 years.
What is an FHA loan?
FHA (Federal Housing Administration) loans are government-backed mortgages that require much smaller down payments than their conventional counterparts. In fact, you may qualify for an FHA loan with as little as 3.5% down, but you’ll likely be on the hook for mortgage insurance each month in order to help the lender blunt some of the risk. These loans are ideal for those who can’t afford a huge down payment, but have a steady income.
SOURCE : https://www.thesimpledollar.com/best-mortgage-rates/
SOURCE : https://www.thesimpledollar.com/best-mortgage-rates/
