Selecting a Mortgage

 

Before you buy a home, it's important to find a home loan that fits your personal situation. There are certain things you can control, such as the lender you choose to work with, the amount you borrow, the type of loan, and the length of the loan and other things you can affect, like the interest rate, the closing fees, and the timing. Looking at each of these factors based on what's most important to you will help determine the right mortgage fit for you. While the best interest rate is a significant factor when choosing a lender, there are other important things to consider. Your lender should be straightforward about how their rates work, focused on your needs, and dedicated to helping you make informed decisions. If a prospective lender is vague about costs, unable to explain your loan options in plain language, or pushes you toward a particular loan product without clearly explaining how it meets your needs, you may want to keep looking.

Be sure to ask lenders for a direct interest rate quote for your situation, rather than relying on advertised rates. Since rates can change daily, ask if the rate you are quoted will be the one you get when you're ready to finalize your loan. This seems simple enough: You find a home, and subtract your down payment from the price you've agreed to pay. The amount left over is what you borrow from your lender. However, you should also keep in mind other costs associated with the loan amount principal, the amount of money borrowed on a loan. such as interest paid to the lender, property taxes, and homeowner's insurance. All of these costs will be factored into your overall monthly payment.

The size of your loan may also affect your interest rate and will certainly impact your monthly payment. Make sure that you are comfortable paying the monthly payment, including principal, interest, taxes, and insurance, as well as homeowners' association dues, if you are considering a home or condo that requires that monthly cost. If it's a stretch on your budget, consider increasing your down payment so you can reduce your loan amount. Even if that means waiting a little longer to buy a home, borrowing a smaller loan amount can lessen your monthly payments.

While there are a lot of mortgage options, the basic loan types are fixed rate, adjustable rate, interest only, and hybrids (a combination of fixed and adjustable). Fixed loans offer stable payments over the entire loan term, while adjustable-rate loans vary based on movement of interest rates. It is important that you understand how your payment could change and how quickly it will pay down the balance of your loan. No matter which loan you choose, make sure that you can comfortably afford the monthly payment, which includes principal, interest, taxes, and insurance.

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