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Finding Your Perfect Mortgage Match: More Than Rates and Terms
New homebuyers can find themselves faced with many decisions. One of the first is how to choose the perfect mortgage lender.
It’s the right instinct as a buyer to jump straight into the loan with the lowest interest rate. Money talks, right? However, selecting a mortgage based on interest rates alone might not reveal the entire borrowing story. When you're locking down the right financing for you and your lifestyle, a number of factors should come into play.
Top Things to Consider When Shopping for a Mortgage
Lenders Offer Similar Mortgage Rates
Within the mortgage landscape, there are two institutions that set the base rates for financing: Fannie Mae and Freddie Mac. From that pricing foundation, individual lenders then decide how much above the base rate they will charge on their loans. This decision is based on several factors, but the difference in interest rates between various home lenders rarely exceeds a quarter point. This slight variation is unlikely to have a significant impact on your monthly mortgage payment.
Out-of-Pocket Costs Make the Difference
So, while the variance of the rate may not have a great impact, be aware that up-front or out-of-pocket costs can be the culprits and too often buyers aren’t informed. In a recent survey, 94% of homebuyers said they experienced a surprise while purchasing a home, including unexpected costs related to closing and taxes as well as the unanticipated impact to their monthly budget.
These additional expenses, often generically referred to as “origination fees” or “closing costs,” can vary widely by lender, adding up to as much as 5% of the home’s sale price. Be sure to compare these costs as you shop for a lender, to avoid surprises down the line and determine if that slightly higher rate will end up being more affordable.
Loan Servicing Matters
Buyers should also consider what happens to their loan after closing. The servicer is responsible for collecting your monthly mortgage payment and any escrowed amounts, as well as paying buyer taxes and insurance premiums.
Many lenders will outsource servicing to other entities. While this doesn’t always make for a bad experience, especially if you make payments on time, make sure you know who a proposed lender uses to service your mortgage and fully understand how easy it is to contact this entity when necessary. In general, local servicers are more invested in the community and will often be more responsive to customer inquiries throughout the life of the loan.
Finding a Loan Officer You Trust is Everything
When seeking financing, potential buyers should shop for a loan officer as well as their mortgage. A loan officer who is invested in your success will assess your financial situation, help you find the best type of loan based on your available down payment, income, debt and other factors, and even provide you with advice to improve your credit score or save for a down payment should either be necessary to qualify for financing.
It matters because generally, buyers with a higher credit score and larger down payment can expect better terms, while those with lower credit scores and less money to put down will see slightly higher rates. The lowest rates are usually reserved for buyers who can put down at least 20% and have a credit score of 740 or higher, but a loan officer can help you understand your options and identify the best mortgage type for your situation or help you with planning if your best option is to get a few things shored up financially before you buy.
Once your mortgage is approved, he or she will also be there each step of the way to guide you through the process from application to closing. This is another reason why that trusted loan officer is so important. A professional operating at this level of service will provide transparent information on the bank’s fee structure, so buyers have a clear view into out-of-pocket costs that will be due when you sign for your financing and because a home loan can require a lot of documentation and communication, you’ll want someone who keeps you in-the-know at all times.
Ultimately, completing the journey of a home loan is exciting and fun, but can be much like navigating a maze. Your loan officer can make all the difference in your experience. The right professional will be your compass, guiding you and illuminating the path from the start to finish.
The moral of this story is simple: when shopping for a mortgage it's about more than rates. It's also about having that reliable partner by your side for one of life's most substantial and wealth-building purchases.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.