Mortgage Loans: Why Comparison Shopping is Important
Comparing mortgage loans and lenders is a real hassle. You're excited to buy your first house, and the thought of wading through various mortgage loan offers is putting a damper on your mood. Yes, comparison shopping will likely slow down your home loan search. You have to make appointments with different lenders, submit your application and other documentation, and then wait for a response. The entire process can take weeks. Instead of reflecting on the negative aspect of comparison shopping, focus on the benefits.
Mortgage loans aren't cheap and the majority of borrowers finance their homes for 30 years. Everyone knows that mortgages involve more than paying the principal, and it's not unusual to spend hundreds of thousands of dollars in interest payments. This reason alone should compel you to shop around and compare mortgage loans and lenders. The better your mortgage deal, the less you pay.
And the best part, you don't have to contact each lender or mortgage company on your own. This is a tedious and time-consuming task -- it's no wonder that many homebuyers avoid the process. A simpler method involves using a home loan broker to compile rates and offers for you. Sure, you have to read each offer and decide the best loan deal. Brokers complete the legwork for you. All you have to do is sit back, read through the offers, and choose the best lender.
Mortgage Interest Rate
The interest rate offered by different lenders is one major aspect of comparison shopping. There isn't a standard interest rate for home loans. Rates are within a specific range and your credit score determines where you fall. But here's the thing -- lenders quote varying interest rates on loans. You can submit the same information to two separate lenders and receive two different interest rates. Consider the quote with the lowest rate. This will likely offer the most savings on your mortgage loan.
You can pick a mortgage loan with a 30-year term or a loan with a shorter term. There are benefits and risks to both options. The longer your term, the cheaper your house payment, which increases affordability. A shorter term triggers higher payments, but you're able to pay off the loan faster and save on interest. Ask each lender to give a quote for a traditional 30-year term and a reduced term -- perhaps 15 or 20 years. Compare the house payment, interest rate, and possible long-term savings on each to see if a lower loan term is within your best interest.
The amount you pay in closing costs depends largely on your mortgage lender. Lenders charge a fee for their services and you must pay fees to third-party providers (title companies, home inspectors, appraisers). Your mortgage quote, or Good Faith Estimate, provides a breakdown of all expected fees. This is an estimate and real fees might be higher. However, this quote provides a pretty accurate estimate. Fees for your application, the loan origination, and the credit report can inflate your closing costs. The lender with the cheapest fees might be the better alternative since cheaper fees can result in cheaper closing costs.