Considering how life-changing it is to purchase a new home, it isn’t a process you should approach lightly. The financial aspect of the decision to buy is the most significant one and considering that you’ll likely need a mortgage to make it happen, it’s good to take a long-term approach.
One of the factors that affect your future financial outlook post-purchase is the interest rates. When it comes to your mortgage, these rates can vary widely depending on the lender, and sometimes make a significant difference in over the life of the loan, measured even in thousands of dollars. Here’s how to look for the best interest rates for your home loan:
Do a Lot of Research
It’s crucial which lender you’re going to be using, as they’re often specialized. Some lenders focus on providing decent options for home buyers with bad credit, while other programs cater to first time home buyers. To find the best fit for you, you’re going to have to shop around. There are also different types of loans you need to consider.
Types of Loans
When it comes to institutional mortgage loans, you’ll have four main options to choose from:
- Conventional loans — require a 20% down payment without private mortgage insurance, favorable if you’ve already saved up for the down payment;
- VA loans — only available to qualified veterans;
- Federal Housing Administration loans — require as little as 3.5% down payment, but you will have to pay private mortgage insurance, useful if you don’t have savings already;
- Jumbo mortgages — special credit requirements and restrictions, if you are financing more than conventional conforming loan limits.
Fixed or Adjustable Rate?
If you opt for a fixed rate, it will remain the same over the life of your loan. An adjustable rate means that for the first five years (up to seven) your rate will be lower than a regular fixed percentage rate would have been, but then it would adjust to the average rate every year after that. It depends on the state of the market, and it could end up being a higher cost than a fixed rate.
However, if you’re only planning to own the property for a few years, an adjustable rate might be a better choice. When it comes to the fixed rate, the repayment term commonly varies between 20 and 30 years, although people who can afford a higher payment might opt for a 15-year repayment term to save on interest costs.
When you’re looking for a lender, it’s important to be informed about the current mortgage rates. The difference between the average percentage and what the lender offers you will tell you whether there’s room for negotiation. To get the best deal possible, you should select lenders that provide a rate that’s as close as possible to the average. In California, the standards for different mortgages are currently between 3.4%-4.5%.
Once you find a lender who offers you a good deal and you’re also pre-qualified and pre-approved for a mortgage, you can lock in the interest rate. In the case of interest rates rising within the specific window you agreed upon with the lender, you will be protected from suddenly having to pay more. However, that also means that if the interest rates drop, you most likely won’t be able to take advantage of that.
No matter what type of real estate market you’re in, it’s critical to work with a professional agent – One who has a proven track record of results. If you have a real estate related question, we’re here to help! Let’s Talk!