Real Estate Investing
Getting the Best Home Loan
"Best Home Loan" Means Different Things to Different People by Lending Tree
Every home buyer or homeowner naturally wants the best mortgage.
But what does "best" even mean in this context? The answer will vary because not all borrowers are alike. For some borrowers, "best" means a smaller down payment or lower monthly payment. For others, "best" means a higher loan amount, lower interest rate or more attractive loan terms.
Your first step, then, is determining what your needs are, and then you can find the loan that best meets those needs.
How to Get the Mortgage
Take the time and make the effort to become educated about the different types of home loans and the advantages and drawbacks of each.
There are loans with different down payment and underwriting requirements, mortgages with fixed and adjustable interest rates, and loans with features like interest-only payments or prepayment penalties.
Once you know what you need -- for example, a $190,000 mortgage for a $200,000 purchase with the lowest possible payment -- you can shop around and compare rates, terms and costs from different lenders.
Shopping for a loan can be especially challenging for first-time home buyers who have no prior experience with mortgages. A home affordability calculator and mortgage payment calculator can help you see how different programs and interest rates influence what you pay each month, and how that translates to a home purchase price and down payment.
It's important that you secure your home financing before you go shopping for your home. Buying a home is a lot less stressful if you know ahead of time what you can spend, and that you won't be turned down for your mortgage.
You can have a conversation with a mortgage lender to see what's available to you, or you can input your credit score, down payment, purchase price, and other options (veteran status, bankruptcy filings, etc.) into LendingTree's LoanExplorer tool, and based on your inputs, you'll get real offers from LendingTree lenders. And if you don't know your credit score, no problem. You can get your free credit score here.
How to Gather Mortgage Quotes
Studies have shown that consumers who obtain several quotes from competing mortgage lenders get better deals on their home loans and save thousands. Whether you contact lenders in person, by telephone, or online, get at least four quotes in writing and compare them to get a competitive deal. It's important that you obtain your quotes as simultaneously as possible, because rates change continuously, often several times a day.
The interest rate, annual percentage rate (APR), costs and loan features should be prominently displayed in writing on your quotes. No lender is obligated to honor a quote, however, unless it puts it on a Good Faith Estimate, or GFE – a worksheet or scenario does not carry the same consumer protection. Once you actually apply for a loan, the lender must issue a GFE within three business days.
How to Compare Mortgage Quotes
When comparing mortgage loans, your definition of "best" come into play – do you want the lowest cost, or the lowest interest rate? In general, the lower the rate, the higher the costs. How do you compare loans with different costs and rates? Suppose you've got two offers for a $200,000 home loan. One loan has a 4.0 percent interest rate and costs nothing. The other has a 3.75 percent rate but costs $5,000. Which is the better deal?
The APR incorporates both the loan's interest rate and its costs, and is useful for comparing loans of the same type (you cannot compare a 30-year loan to a 15-year loan, or a fixed loan to an ARM) with different rates and costs. In this case, the first loan's APR is the same as its advertised rate, because there are no costs. The second loan has a lower APR of 3.952 percent.
Keep in mind that your loan's interest rate is not guaranteed until you actually lock it in. It's a good idea to compare mortgage rates one last time before locking your loan and committing to your lender.
Choosing a Lender
Mortgage loans are offered by banks, credit unions, mortgage brokers, investment firms and others. Not all lenders offer all products, so it pays to check with several when narrowing down your mortgage choices. You'll want to work with a reputable lender who will answer your questions and help you compare loans to find the best one for your needs.
One of the best way to choose the best lender to fit your needs is to take a look at lender ratings and reviews in your area. This video also offers some helpful hints on how to choose the right lender.
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