A Perfect Guide To Finding A Suitable Mortgage In Texas
For most people, a mortgage will be the largest long-term debt they will ever have. This is why you need to take the time to get the best possible mortgage rate. Doing so will help to minimize the overall costs of owning your own home. If you are unsure about how to start shopping around, there are some tips that you can use to unlock the best rates possible.
Know Your Credit Score
Your credit score will be used by potential lenders to determine if you qualify for a loan and the interest rate you will pay. The higher your credit score, the better the terms of your mortgage will generally be. This is why you need to be proactive and scrutinize your credit report at least 6 months before you start applying for loans. This will give you time to identify and correct any errors.
Consider The Mortgage Types
When you are shopping around for a mortgage, you need to know which loan type is best for you. There are 2 types that you need to consider.
The first is conventional loans which make up around 65% of all the mortgages which are issues. These loans will be offered by private enterprises such as mortgage companies, commercial banks, and credit unions.
The second is government-backed loans. While these loans are obtained through private lenders, they will be fully or partially insured by the American government. These loans will often have less-rigid requirements, smaller down payments, more flexible income requirements, and low credit expectations. The one thing with these loans is that the property will need to be owner-occupied and not an investment or rental property. Low-income individuals and first-time buyers should consider this type of loan.
After looking at the type of mortgage you can get, you need to consider the financing category that the loan falls into. There are two categories that you need to be aware of.
The first is the fixed-rate mortgage. As the name suggests, this mortgage will have a set rate that does not fluctuate throughout the loan term. This is ideal for borrowers as you have predictable payments for the entire mortgage term.
The second option is adjustable-rate mortgages which are also known as variable rate. These mortgages will have interest rates that change periodically and in relation to an index. The introductory rate for these loans is usually lower than the fixed-rate mortgages, but this will change after a set period of time. These loans can be favorable to buyers as the interest rates could decline.
Contact Several Loan Providers
It is important to note that loan officers are not all-knowing. This is why you need to do some homework and understand what the pros and cons of the different mortgage products are. You can hire a mortgage broker to help with this as they source mortgages from lenders and help to facilitate the transaction.
However, these brokers will take fees from lenders in exchange for sending customers to them even if the mortgage product does not suit the customer. Any recommendations you get from a broker should be considered carefully. Never blindly trust the recommendation provided by a broker.
Include The Additional Costs
Borrowers are often distracted by the low advertised interest lenders advertise and overlook the many fees which can increase the overall costs of the mortgage product. This is why you need to take the time to consider all of the costs such as appraisal costs, application fees, underwriting, loan-origination and broker fees. There could also be settlement costs to look out for.
Linked to the interest rates are points which are fees that are paid to lenders and brokers. The more points paid, the lower the interest rate will be. A single point could cost 1% of the loan amount and reduce the interest rate by 0.25%. To fully understand what you will end up paying, you will need to ask that the points be quoted in dollars.
All lenders have to legally provide a three-page loan estimate which details the costs associated with the mortgage you want to get. This has to be provided within 3 days of application. The information on this estimate will include the monthly expenses, the total closing costs, and the estimated interest rates. It is important to note that this is not a loan offer, but it does obligate the lender to accept the listed terms if you have the available finds and meet the required credit approval.
Get It In Writing
If you are happy with the terms proposed, you need to ask for a written rate lock or lock in on the estimate. This needs to include the agreed rate, the term of the loan and the number of points that have to be paid. The majority of lenders will charge a non-refundable fee for locking the terms, but this is generally worth paying as there are a lot of issues that can occur on the road to approval.
Once you have chosen a lender, you will get a pre-approval letter. This is a legally binding agreement to lend the money after income verification, credit checks and funding is secured.
Choose The Best Rate
Completing some online searches and using mortgage rate calculators can help you get a better idea of what is on offer. However, it is important to note that interest rates fluctuate and different lenders could have offers on certain loan products.
Choose The Best Lender
When it comes to choosing the lender, you need to consider the customer service on offer. Loan applications require a lot of paperwork and information which is why you need a reliable point of contact. This contact will answer any questions that you have and will make the entire application process easier. Good customer service also ensures that the approval schedule stays on track and that all the documentation is signed in an efficient and timely manner.
The Online Option
Human interaction is generally preferred, but you can save some money by choosing a mortgage with online lenders. These lenders will theoretically have lower overheads and can offer better rates and lower fees. However, if you would prefer more hand-holding through this process, a traditional lender might be better.
Shopping around for the best mortgage rate is important and you need to be focused. You need to understand the terminology used and choose the right type of mortgage. Your mortgage is something that you will live with for many years to come and it is vital that you choose correctly.