Most people can’t pay cash for a home – while the National Association of Realtors reports 23 percent of home sales were cash sales in January 2017, the majority are for second homes, distressed properties or investment purposes. With a decrease in distressed and investment sales, there are even fewer cash sales today. That means most potential homebuyers will need to get a home loan – the question that usually comes up in the process is, “How can I find the best mortgage for buying a house?”
Choosing the right type of loan, and the best lender is one of the most important steps to buy a home. In fact, even before you begin your home shopping, you’ll want to get pre-approved for a mortgage. That way you’ll know what you can afford while showing realtors that you’re a legitimate, serious buyer. Without getting pre-approved, there’s a good chance that sellers will choose a buyer who has already gone through that process even if their offer is less than yours.
Get Financially Prepared
Before searching for the best possible mortgage, you’ll want to be sure that you’re financially prepared. The first step is to check your credit score if you don’t already know what it is as the higher your score, the lower your interest rate will be. The lowest rates go to those with scores of at least 700, so if yours is below that you may want to work on improving it before moving forward. Avoid applying for any new credit and pay off as much of your credit card and other revolving debts as you can. Aim to utilize 10 percent or less of your available credit – the closer it is to zero, the better.
Of course, you’ll need a decent down payment too – while the percentage varies, it can be anywhere from 3 percent to 20 percent – experts generally recommend at least 20 percent.
Review Loan Options
Understand the various loan options so that you’ll know what you’re looking for when it’s time to search for that ideal mortgage. Typically, loan term lengths are 15 or 30 years. Keep in mind that you’ll have higher monthly payments for a 15-year mortgage, but you’ll get a lower interest rate and obviously pay the home off faster too. Think about the interest rate types too – fixed or adjustable. A fixed rate carries the same interest rate over the life of the loan, and the monthly payments will remain the same. Conversely, an adjustable rate may be low initially but can change throughout the course of the loan. Your mortgage payments will probably fluctuate, too.
Once you’re financially prepared, the next step is to begin shopping around to compare lenders. To start, ask neighbors, coworkers, friends, and relatives if they have any recommendations. You can also check marketplaces online that allow you to compare interest rates and lenders. Identify the top lenders and then narrow down your options by researching reviews looking at key points like reliability and customer service as well as considering the number of years the company has been in business. Experienced lenders can help you select the best financing options for your situation and find the best interest rates.
Once you’ve decided on a lender, before you sign the dotted line, do a little more digging by checking references. As for names of recent past clients and call them, asking about their experiences with the lender.