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How to get the best mortgage deal

Buying a home is one of the biggest purchases you'll ever make. That's why it is very important to fully research all your options for financing that home purchase with a mortgage.

It's also a good idea to look at your credit report and credit score before finding a house so you can deal with any potential problems before you fill out mortgage loan applications.

Be prepared before you apply

There are numerous tasks to take care of before you actually apply for a mortgage. One of the first steps is to obtain a copy of your credit reports at www.annualcreditreport.com or call 877.322.8228.

You are entitled to a free credit report once a year from each of the three major credit reporting bureaus, Equifax, Experian and TransUnion.

Once you have your credit report in hand, you can go over to ensure that all the information is accurate, including your name, address and past history of bill payments.

If there is inaccurate information, you should write to the credit bureau and the creditor that has provided the inaccurate information to get it corrected.

When you are ready to apply, be completely transparent on your application. Come prepared with all of your financial information, including pay stubs, tax returns and documentation of any other income you may have.

Shop around for rates

You should also shop around for rates and fees on mortgages before you apply, using sites like Bankrate at www.bankrate.com/mortgage.aspx and Zillow at www.zillow.com/mortgage-rates.

It's also a good idea to call some local financial institutions because not all banks or credit unions are included in the searches on these two sites. Also, rates change daily.

The bigger the down payment, the more equity you will have in your new house. In addition, you may qualify for a lower rate with a down payment of 20% or more.

Penni Chasens (2R), master sales associate for Cervera Real Estate, shows a condo to prospective buyer Joe Gambescia (R) at the EPIC Miami Residences and Hotel. (Photo: Joe Raedle/Getty Images)
Penni Chasens (2R), master sales associate for Cervera Real Estate, shows a condo to prospective buyer Joe Gambescia (R) at the EPIC Miami Residences and Hotel. (Photo: Joe Raedle/Getty Images)

Consider the different kinds of loans — while a fixed rate 30-year mortgage could be the best deal, it is possible that an adjustable rate mortgage might work better for you if you aren't planning to live in your home more than five or seven years.

When you've found the best combination of a loan rate, points and fees for you, and you have a contract on a home, it's time to lock your rate. Different periods are available to lock your rate, including 30, 45, 60, or 90 days.

Typically, a purchase takes around 45 days to close, though a variety of situations can extend that. If your rate lock expires before the closing, you may have to pay again to extend the rate lock, so be conservative, even though it can cost more to lock the rate for longer.

Consider points and fees

All too often, points and fees are an afterthought, but they are very important. Points represent 1% of the total of your mortgage loan balance.

By paying points, you can obtain a lower interest rate for the life of your loan. In general, the longer you plan on staying in your home, the more money you can save by paying points up front.

While the specific costs involved in closing on a loan can vary depending on where you live, they tend to range between two and five percent of the purchase price of a home.

They include a variety of fees from loan origination to inspections to appraisals to title insurance and searches.

Some of these fees are fixed, but some can be negotiated. Don't be afraid to ask your lender for some concessions on points and fees. Any money you save you can put to better use elsewhere.

Dive deeper: Buying or renting a home: Factors to consider

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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