Shopping for a home loan online has suddenly become an important step in getting the best mortgage on the market. Were you aware that consumers spend almost twice as much time researching the purchase of a car than they do a home loan? Yet in the U.S., the average house costs five times more than the average automobile? A recent Zillow survey revealed that American consumers spend ten hours shopping for a car online, while only researching mortgage loan options for about five hours. Home loan rates are near record lows, so you stand to save a significant amount of money my choosing the best mortgage for your situation.
As a result, people miss opportunities to get lower mortgage rates and better home loans costing them thousands of dollars over the years. To avoid losing out on your hard-earned dollars, here are a few tips to help you take control of the mortgage shopping process:
1. Get your home finances in order. Before you even start shopping for a home loan assess your finances. Determine what you can afford. As a rule of thumb, the total cost of your mortgage payment — including any taxes and insurance—should not exceed 30 percent of your take-home pay. You’ll also want to get a good ballpark estimate of your credit score. Your credit score impacts your interest rate as well as your eligibility to get a loan. Currently, one-third of Americans cannot get a mortgage because their credit score is below 620. FHA mortgages
2. Pick the type of home loan that meets your needs. There two main types of home mortgages: Adjustable-rate mortgage (ARM) and the fixed-rate loan. ARMs have fixed rates for a short period (usually 3, 5 or 7 years) and then readjust. These mortgages are generally considered riskier because the interest rate and payments can increase when the loan adjusts. However, if you are only planning on living in your house for a shorter period, these loans may make sense for you, especially because you’re likely to obtain lower rates.
A home loan with a fixed rate is just that—the interest rate is fixed. Many people like this type of loan because the interest rate stays constant throughout the period of the mortgage. With both fixed and adjustable rate loans you can select various repayment periods. The most common term is 30 years, but if you can afford the higher monthly payments of a 20- or 15-year term loan, you will save money with the lower interest rate and quicker payoff period. The most important factors in selecting your mortgage type is the length of time you plan on staying in your home and your risk tolerance.
3. Take advantage of your 30-day window. There is no such thing as too many loan quotes. Borrowers may shy away from getting multiple loan quotes, fearing their credit will be impacted when multiple parties check their credit within a short period of time. However, you have 30 consecutive days in which multiple pulls of your credit score, or “rate shopping,” won’t affect your credit. With that in mind, take advantage of the 30-day window and get as many loan quotes as possible to get the best rates and terms. Note that in order to compare quotes apples-to-apples, it is important to get quotes from lenders around the same time as rates can change daily. It is always wise to double-check the rate you get from a single broker or bank to make sure you really are getting a good rate and that you find a lender that you trust.
