Mortgage Insider Info to Get the Best Home Loan
As you progress in your home search, there are key components that are important to understand. The following insights and concepts can help inform you about what options are available and help you make the best decision and choice when it comes to your home loan and interest rate.
Understand your loan options – a home loan is no longer strictly a means to purchase a home. There are numerous products and options available that can help the mortgage become a tool that is integrated into your overall finances. If you’re not putting at least 20% down, you have even more options to consider. Is your best overall home loan a FHA loan or would it be better to consider a conventional loan with mortgage insurance. There are still outlets available to do a first and second loan (80/15, 80/10) or would a Conventional loan with No Mortgage insurance be best for you. The options are out there, it’s a matter of finding which option is “best” for your unique situation. Our team has invested in a tool called the Total Cost Analysis to help our clients see how each financing option would perform, not only monthly, but over the next 5 to 15+ years.
(See an example of how this tool helped create a financing strategy that met their goals: Keep payments at or under $3200 / month, Have a low fixed rate, and have the ability to save as much as possible for their child’s college education over the next 12 years. Link to Total Cost Analysis. If you’d like to have a custom analysis created for you, just feel free to call us or request a home purchase review.)
Understand the relationship between points and fees – You have probably heard the terms “points”, “discount points”, or “origination point” tossed around casually in the context of home loans. These “points” are what lenders refer to when they are charging a fee/cost to receive a lower interest rate. While we all want to have the lowest rate, we have to determine if the cost associated with this lower rate can be justified based on how long you plan on owning your home. “Points” can work in the other direction as well. In some cases, it may make sense to go with an interest rate that is .125%-.25% higher so that your lender can give you a credit to help cover other loan related costs. This works wonders for someone who is not sure how long they’re going to be in their home by keeping upfront costs at a minimum. Too many options? We can make it simple by preparing a Total Cost Analysis, showing you which loan program and point/rate structure is best for you.
Find your resource – whether it be a mortgage planner, a website, etc., it is imperative that you have a source for what’s going on in the market and how that may impact interest rates. I’m not talking Fox Business or USA Today. Most of their mortgage related news is a week old. It’s like looking at last week’s newspaper to find out what a stock is worth…old news. Mortgage backed securities (the Bond that drives our mortgage interest rates) trade up and down throughout every day, in some cases as much as .25% in a day. That’s why we stress the importance of having a resource that delivers and/or understands the market, allowing you to better your chances to secure the lowest possible interest rate. Feel free to read our weekly mortgage market update for what’s been happening and what’s upcoming.
Rate Negotiation after Lock – What happens if you lock in your interest rate, but rates then move lower before you close on our new home? The answer will depend on your lender. Most big Banks are stuck in this situation. Their limited/restricted access to lenders leaves them nearly powerless to help their client. Our team is fortunate to be part of a Bank that has relationships with multiple lenders that understand our clients. As a result of these relationships, we create a rate re-negotiation strategy for each of our clients. Once we have received loan approval and are within 10 days of your loan closing, we will re-negotiate your interest rate if it has improved by at least .25%. This is commonly known as a “float down” with the few lenders offering this type of feature, so make sure this is an option available to you.
The key to being able to secure the lowest interest rate, lowest monthly payment, or best home loan is not necessarily a short answer. The journey has to begin with educating yourself about the home purchase and financing experience so that you can understand what options are out there. The differences in the options may seem small on the surface, but small decisions make a big difference over time. We are available as a resource to help you narrow down your options and provide a simple, clear path to finance your new home. If you have not already, get started today by completing our very short online application so we can be a resource to help you get the best home loan and interest rate integrated with the purchase of your new home.