What to know when shopping for a mortgage
Shopping for a mortgage is a process that could help you qualify for a loan and end up saving you money* on your mortgage payments.
The requirements for a home loan can vary slightly among lenders. Shopping around for lenders could show you that you qualify for certain mortgages at one lender that you may not qualify for with another. Shopping different lenders could also let you see which lender is offering the best rate on a particular mortgage.
When you are ready to start shopping for a mortgage, you can begin with an online mortgage application.
Understanding the different types of mortgage lenders
There are many types of mortgage lenders. Understanding how each works can help you decide which type might be best for you and your situation.
Retail banks vs. credit unions
Retail banks and credit unions both offer mortgages, but the experience at each could be different.
Banks tend to come with higher rates and fees than credit unions but typically offer a larger selection of loan options and more physical locations than credit unions. Credit unions give borrowers a more personalized experience and tend to manage the loan throughout the loan’s life.
The role of mortgage brokers
Mortgage brokers do not issue home loans but help borrowers find the best place to get a loan for their specific situation. Think of mortgage brokers as the middlemen between lenders and potential homebuyers. A broker will compare lenders and help negotiate the best possible home loan for your situation.
Online lenders and fintech options
Online and fintech lenders offer digital home loans that you can access with just an internet connection. This typically makes the mortgage process quicker than traditional banks and lenders. Since mortgages with these options are online, they have a reduced overhead that they pass onto borrowers through lower interest rates and fewer lender fees than other options.
Key factors to compare when reviewing loan offers
When you compare loan offers, there are a few key factors you will want to review to make sure that you are making the best choice for your situation.
Interest rates vs. annual percentage rate (APR)
Your interest rate shows your base borrowing cost, while annual percentage rate (APR) includes your interest rate, any points you purchase and fees.
When comparing lenders, looking at different APRs will give borrowers a better understanding of how much they will spend on their mortgages over the life of their loans.
Fixed-rate vs. adjustable-rate mortgages (ARM)
If you are hoping for more predictable and stable monthly mortgage payments, a fixed-rate mortgage is a better option as it will keep your rate the same for your entire loan. However, if you are hoping for a lower cost at the start of your loan, you may want to consider an adjustable-rate mortgage (ARM). ARMs typically start with a lower upfront rate as you get settled into your loan. After a set amount of time, your rate will vary according to current mortgage rates.
Loan terms: 15-year vs. 30-year options
Besides paying off your loan in a shorter amount of time, there are a few other differences between a 15-year and 30-year mortgage.
With a 15-year mortgage, your monthly principal payments will be higher but the mortgaget interest rate will be lower. Because your principal payments are higher, you typically end up paying more each month. A 30-year mortgage tends to mean lower monthly payments due to lower principal payments. However, the rate on a 30-year mortgage is typically higher.
Evaluating closing costs and lender fees
Closing costs and lender fees are additional charges that borrowers pay when finalizing their loans. Evaluating and comparing these costs between lenders could help you save money before starting your loan.
Understanding the loan estimate document
When you finish your mortgage application, lenders are required to send you a loan estimate document. This document will break down specific costs when getting a mortgage with that lender.
The loan estimate document’s goal is to help you understand everything that is going into a mortgage with that lender. You can use that information to compare loans with different lenders.
Comparing origination charges and third-party fees
Origination charges are the fees your lender needs for processing and underwriting your loan. Third-party fees cover requirements from an outside provider, such as appraisal fees, title insurance, escrow and attorneys fees.
Origination charges can vary from 0.5% to 1%, depending on your lender. At the same time, some lenders or loan types could require third-party fees that others might not. Comparing which of these charges and fees are required among lenders could save you money.
When to consider a no-closing-cost mortgage
A no-closing-cost mortgage could save you money when finalizing your mortgage in exchange for a higher rate or rolling your costs into your loan amount.
Not all lenders offer a no-closing-cost mortgage. If you think you could benefit from paying less at the end of the loan process, look at which lenders offer mortgages with no closing costs.
The role of mortgage points while you shop
Mortgage points can help you lower the amount of interest you pay by putting money upfront.
Deciding between lower rates or lower upfront costs
Mortgage points typically cost 1% of your loan amount upfront and will reduce your mortgage interest rate by a certain amount. When looking at mortgage points, you will have to calculate whether the upfront cost is worth the lower rates for your situation. If you can afford the additional cost, purchasing points may be worth it as it could end up saving you money on interest payments over the life of your loan.
Getting a mortgage: How to get started
When you have decided on a lender and are ready to get a mortgage, you can start by completing an online application.
After deciding on a lender and starting an application, you will be connected with a Loan Officer to help you through the mortgage process. Your Loan Officer will be able to answer any questions you may have, show you any costs, assist you with your application and help you understand your mortgage.
Ready to start a mortgage with a trusted lender? Begin an application today.
*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Rate for current rates. Restrictions apply.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
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