Finding a home loan that meets your needs can feel overwhelming. The lending marketplace is vast and ever-changing, and sorting through the options is a daunting challenge, especially for first-time buyers. On top of that, lenders can tweak loans to hide the real costs, leaving novice, unsuspecting borrowers in the unaware of what they are really paying.
A good way to avoid that fate is to do some homework on the lending industry. Loans don’t come just from banks any more. Instead, many homebuyers borrow through credit unions, mortgage lenders, or through state Housing Financing Agencies (HFAs), which partner with lenders to offer their products and services. HFAs are state-chartered nonprofit organizations that seek to expand homeownership opportunities, especially for low- and moderate-income people and special populations, such as first-time homebuyers, active military and veterans, police, and teachers.
Another popular loan source is mortgage brokers, who act as intermediaries between borrowers and multiple lenders. Experienced brokers attempt to find borrowers the most competitive rates, and can be particularly helpful to applicants with poor credit.
As you dig in on your loan search, begin with some online research to get a picture of what’s out there, and then start comparing rates on similar loans – loans that have the same term, require the same down payment, and are for the same amount. It’s also important to get a detailed summary of rates, points, fees, and closing costs. Remember that the rate quote you see on the Internet is just a starting point, subject to change depending on your credit score and other information you’ll enter on your loan application.
Once you have a feel for the landscape, it’s time to pick a mortgage broker or loan officer. As with babysitters and doctors, personal referrals are a great way to start. Consult with friends, family, colleagues, or Realtors for some names, and then interview several candidates. Ask the brokers about their communication system, turnaround times for preapprovals, appraisals and closings, and what lender fees you can expect to pay. Make sure you feel comfortable with the person you choose and steer clear of those trying to push you too hard in one direction. The bottom line: you want someone experienced and diligent and dedicated to finding the best loan for you.
As you move closer to the point of applying for a loan, make a list of questions for the broker or lender. These might include:
- How much money do I need for a down payment?
- Can my parent co-sign to help me get a loan?
- How much will mortgage insurance add to my monthly payment?
- I’m a first-time homebuyer. Is there a special program for me? (Most likely.)
- I’m a veteran. Am I eligible for special loans? (Yes.)
A good loan officer or mortgage broker will be able to walk you through the process and steer you toward a variety of loan options. As you evaluate them, keep in mind the three things that affect your mortgage costs: the term of the loan, the interest rate, and the mortgage insurance.
While the term of the loan is typically 30 years, the interest rate and mortgage insurance can vary widely – and will have a decisive impact on what you’ll pay. Read the fine print! Ask questions! It’s easy to get worn down during the home loan process, but vigilance is a must as you get set to make what will likely be the most important financial commitment of your life.
Happy hunting …