You’ve found the perfect home, but now you need the right loan. Purchasing a home is one of the most important investments you’ll make so the process of finding the best mortgage product often leaves homebuyers with more questions than answers.
With a variety of options available to fit the varying financial situations of today’s homebuyer, the decision can be overwhelming. If you’ve found your dream home, here are a few tips to help you through the process of selecting the right loan.
- Before selecting the loan, in addition to the mortgage rates, take into consideration the additional fees that may be charged. The lowest mortgage rate may not be the best deal when fees, points, or mortgage insurance premiums are higher! A lender’s mortgage specialist should be able to help you calculate your fees, interest and payments for the loan on a monthly and lifetime basis for the loan.
- Points – Fees that are collected by the lender in exchange for a lower interest rate. Commonly called discount points, each point is equal to 1% of the loan amount. To determine if it is wise to pay discount points to obtain a lower rate, you must compare the up front cost of the points to the monthly savings that result from obtaining the lower rate.
- Prepaids – Expenses of property ownership or expenses incurred while obtaining a mortgage that must be paid in advance. Prepaids typically include real estate taxes and hazard insurance.
- Mortgage Insurance – Insurance provided to protect the mortgage lender against losses that might be incurred if a loan defaults. The cost of the insurance is usually paid by the borrower and is most often required if the loan amount is more than 80% of the home’s value.
- Processing/Administration Fee – A fee charged by a lender to cover the administrative costs of processing a loan request.
- The mortgage lender’s process of collecting payments from a borrower is called servicing a loan. The servicer is who you would call if you have questions about your home loan or escrow account. A mortgage lender that services their loans locally can be easier to deal with and more accessible than an out of town servicer.
- Conventional mortgage products offer fixed rates with a variety of term lengths (15-, 20- and 30-year are common). A fixed rate loan is a good option when rates are low and if you’re planning to stay in your home a long time. The longer the term, the lower the mortgage payment. With a shorter term you’ll have a higher payment but you can pay much less interest and gain equity sooner.
If you’re just beginning the search for a mortgage provider you can begin the research using online calculators to determine your monthly payment for the loan and how quickly you can pay off your mortgage, but be careful because many online payment calculators do not factor insurance and taxes into the monthly payment.
Once you’re ready for preapproval, set up a one-on-one meeting with a mortgage specialist to answer your questions and help you through the process. With the right guidance and lending partner at your side, purchasing a home shouldn’t be complicated.
If you’re looking for more information about purchasing your dream home, visit Meritrust’s Home Loans Page.
Apply today. Ready to be pre-approved to purchase your new home? Apply for a Meritrust home loan today.
