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Deciding what kind of home loan is best for your needs is an integral part of the home buying process. But it’s not always easy, according to California mortgage broker Prime Lending.
Prime Lending notes the eight most important factors to compare when shopping for a mortgage:
• Principal – The principal is the amount you are borrowing—or the price of the home you are buying minus the down payment. Lenders will tell you how much they are prepared to lend you based on your income and credit score. That will help you determine how much house you can afford. Plan on putting down 10% to 20% to get the best rates.
• Mortgage type – Mortgages fall into two categories; fixed rate or adjustable. With a fixed rate mortgage, you pay the same amount each month for as long as you have the loan. The interest rate is slightly higher than some adjustable rate mortgages, but adjustable rates change with the market and will likely rise over time. Currently rates are at historically low rates.
• Interest rate – A loan with the lowest posted rate may have higher closing costs. Consider the Annual Percentage Rate (APR), which takes into account the interest rate and the loan’s other costs.
• Monthly payment – A mortgage loan should help you build equity in your home. The best one may or may not be the one that carries the lowest monthly payment. Consult a mortgage broker for details.
• Term – The term is the number of years your loan will remain active. Mortgages with shorter terms generally carry a higher monthly payment but they can save you a lot of interest over the years.
• Discount points – A point is equal to one percent of the principal. Lenders may offer you the chance to pay points in order to lower the interest rate of your mortgage. If you plan to stay in the home a long time, it may make sense to pay points.
• Lock-ins – When you apply for a loan, the lender will quote you the rates. But rates can go up while you shopping for a home, so it’s a good idea to lock in the quoted rates. There may or may not be a fee to do so. You can lock in your Prime Lending rate by contacting a mortgage specialist at 949.633.2919.
• Closing costs – Origination fees, appraisal fees, and other costs will be added to your loan. Ask your lender for a good faith estimate of the costs, and an explanation of any charges you don’t understand.