Loans and mortgage rates: The basics
Buying a home is a big decision. Here’s how to get the best possible rate on your mortgage loan.
- Buying a home is one of the biggest purchases you'll ever make. That's why it's important to research all your options for financing with a mortgage. One of the first steps is to obtain a copy of your credit reports from either annualcreditreport.com or from the major credit reporting bureaus-- Equifax, Experian, and Transunion. Ensure that all the information is correct, including your name, address, and history of bill payments. If there's inaccurate information, contact the credit bureau and the creditor to get it corrected.
When you're 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 and fees on mortgages before you apply. Rates also change daily.
The bigger the down payment, the more equity you'll have in your new home. You may qualify for a lower rate with a down payment of 20% or more. Consider the different kinds of loans. While a fixed rate 30-year mortgage could be the best deal, it's possible that an adjustable rate mortgage might be better for you if you aren't planning to live in the home for more than five to 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 in your rate. Different periods are available to lock in 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.
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. While the specific costs involved in closing on a loan can vary depending on where you live, they tend to range between 2% and 5% 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. Don't be afraid to ask your lender for some concessions on points and fees. Any money you save can be put to better use elsewhere. Stay financially fit, friends.