8 Insider Tips To Get The Best Mortgage Deal
Determine which loan type is right for you
- A 30-year fixed mortgage offers the dual benefits of fixed monthly payment and it is also the lowest monthly payment for a fully amortized loan.
- A 15-year fixed mortgage has a slightly higher payment, but comes with the same fixed rate so you’ll know what your payments are going to be each month. The biggest advantage to a shorter loan term is that you’ll pay off your loan in half the time and save big on overall interest payments. As the table below illustrates, you would save almost $100,000 in interest paid by choosing a 15-year fixed vs. 30-year fixed mortgage!
- 5/1 Adjustable Rate Mortgage (ARM) offers the lowest possible payment and rate but will switch to an adjustable rate once the fixed period is over. It’s a good option if you plan on moving within the first 5 -10 years. Good for first time home buyers, growing families, and older couples who plan on downsizing once the kids move out!
Here are loan scenarios for the different loan terms:
|Loan Type||Loan Amount||Interest Rate||Payment||Total Interest Paid|
Talk to your mortgage lenders about the different loan programs they offer.
Some lenders offer 7/1 ARMs or even 10/1 ARMs or other programs that may fit your needs better.
Know your credit score
Get a copy of your credit report from all three credit bureaus along with your FICO score. A lender will still need to pull your credit, but at least you’ll have a chance to review your report for errors and accuracy.
You can get a FREE copy of your 3 bureau credit report along with your FICO scores by clicking here.
Have your documentation ready
Be prepared to document your income. Most borrowers will need to provide at least two current pay stubs and tax returns for at least one year to qualify. The sooner you can get your signed application and documentation back, the sooner you can lock in a low rate should interest rates start to go up.
Get multiple quotes
Interest rates and fees can vary from lender to lender – even for loans that are essentially the same. When a lender quotes you an interest rate they must also provide you with an APR – Annual Percentage Rate –the rate you will pay to get the loan through that lender including all fees and closing costs.
Get rates from at least three different lenders. Ask about the documentation required to do the loan and how fast can they get the loan processed assuming everything goes smoothly.
Good faith estimate
While lenders will quote you rates over the phone or in some cases via email, it’s not a real rate until you get it in writing. The lender should provide you with a Good Faith Estimate (GFE). The GFE will include the interest rate you’ll be paying, the APR and a list of all closing costs and fees. Keep this handy and get a GFE from at least two different lenders for comparison purposes. Have the GFE with you when you sign your loan docs and be prepared to not sign the loan agreement if the interest rate, APR, closing costs or fees are not what you were promised in your GFE. There will be slight variations as the GFE is a Good Faith Estimate, but it should not be off by that much.
Lock in your rate
When you lock in your rate, you are getting the lender to guarantee the rate quoted for a set period of time whether rates go up or down. This protects you! If rates go down you can always let the rate lock expire and grab the lower rate. However, you have the rate locked in should rates increase. Rate locks are usually for a period of 30 to 45 days. You’ll need to make sure you can get your application and documentation submitted to the lender with plenty of time to make it through their processing / underwriting department. Talk to your lender about rate locks and any fees that may be associated with them.