Just like buying the perfect pair of jeans, there is no one-size-fits-all solution to finding the right mortgage. With that in mind, you need to take the necessary measures to assess prospective lenders that would be a good fit for your individual mortgage needs.

When it comes to choosing the best mortgage for you, you’ll need to assess your goals and financial situation. From there, you should figure out how much you can spend on a mortgage payment and what type of loan you should get. Once you’ve done that, you can start comparing lenders and estimates. You can do this by asking a few key questions to your lender or broker regarding the duration of the loan, the loan process, and commissions, among others.

To help you out, keep reading our top 9 tips on how to choose the best mortgage for you.

Choosing the Best Mortgage

1. Imagine Your Home and Financial Goals

An essential step to starting the loan process is to create a concrete description of your financial goals. This should include what you want for your home, how you’ll be paying off your loan, and even the lifestyle you want to live. 

Here are some critical questions you need to ask yourself:

  • What do I want in my home? What are the amenities I need? What area do I want to live in – the suburbs, the city, or out in the country?
  • What financial responsibilities do I expect to have in the next five years?
  • What activities am I planning to incorporate into my lifestyle? What measures do I have to take to have the lifestyle I want?

2. Assess Your Financial Situation

Now that you have an idea of what you want in your future, you also have to keep these in line with your current situation and needs.

Assessing your financial situation will help you pick a mortgage that fits your unique circumstances.

Keep in mind these factors that will impact your financing options:

  • Potential home costs: How much can you comfortably pay for housing? 
  • Financial well-being: Consider your credit history and how much you can comfortably pay as a down payment.
  • Career and life plans: ask yourself, “How long do I plan to live in my home, considering my career and other life events?” How long you’re planning to stay in your home will affect your adjustable-rate mortgage.

3. Figure Out Your Housing Budget

Keep in mind that mortgage lenders are still in the money-making business, so don’t be surprised if they’ll approve a loan that’s beyond what you can afford.

Before you look for a loan, settle how much of your budget should go to housing per month. Generally, financial advisers suggest keeping your total home payment below 33% of your gross income,including insurance, tax, and association fees. At the same time, keep your total debt under 43% of your total gross income.

There are many home loan calculators online, or you can use a budgeting sheet to figure out what kind of loan payment you can afford.

From there, you’ll need to get pre-approved for a mortgage, which takes into account your debts, credit history, and your salary per month.

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4. Have a Savings Goal for Upfront Costs

Aside from qualifying for a loan, lenders will consider how much money you can pay for downpayment and closing costs.

Not many people know that making  a larger down payment can be an advantage as it provides instant home equity, softening the blow in case there’s  a dip in the real estate market:

  • Higher cash reserves for emergencies
  • Fixed interest rates

On the flip side, if you’re paying less than 20% of your down payment, you’ll likely have a higher interest rate, plus it may require mortgage insurance in your monthly payment.

Tips on How to Choose the Best Mortgage

5. Compare Fixed vs. Adjustable Rates

Fixed rates mean that you pay the same amount of interest throughout the loan.

Adjustable mortgage rates are lower at the beginning of the loan and capped after a few years. The catch is that the rate rises and falls according to the bond market.

The second option may be better if you’re planning to stay in your home for only a short period. However, if you’re planning to live in the same home long after the low-interest rate is capped, you may save more with a fixed mortgage.

6. Consider the Interest Percentage

Now that you’ve chosen between a fixed-rate vs. adjustable-rate mortgage, calculate the highest interest rate you can afford.

Go back to your loan budget, and with a mortgage calculator, check the different interest rates you can get. Is it within your monthly housing budget?

Consider the duration of the mortgage loan.

7. Consider Loan Fees and Points

Aside from the interest rate, your monthly payment will also be affected by loan points.

Points are fees bought upfront to decrease interest rates throughout the loan. Homebuyers who plan to stay in a home for a long time may benefit from points to decrease overall payments.

To see if you will benefit from buying points, talk to your lender to determine your specific interest rate and point mix.

8. Consider the Duration of Your Loan

Figure out how fast you want to pay off your mortgage.

Getting a short loan, such as 10  or 15 years, will mean higher monthly payments. The advantage is that you’ll have lower interest rates, and you’ll pay your loan faster. You may also build home equity faster.

With a longer loan, you’ll have lower monthly payments, but you’ll eventually pay more in interest and pay off the loan much more slowly.

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9. Compare Mortgage Lenders and Estimates

Comparing offers from different lenders gives you negotiating power, potentially saving you thousands of dollars in interest.

There are two types of mortgage lenders:

Direct Lenders

These are typically banks or credit unions that handle the lending process from start to finish. Working with a bank where you already have a checking or savings account gets you lower fees and interest rates. Otherwise, compare direct lenders when shopping for individual mortgage products.

Focus on researching prospective lenders, considering their reliability, expertise, and ability to offer specific financing options for your unique situation.

When working with a lender, ask these questions:

  • Who will be my primary contact throughout the lending process?
  • How long will the lending process take?
  • Which steps will occur online and in-person?
  • What fees should I expect (application, underwriting)?
  • Are there any down payment assistance programs?

Mortgage Brokers

Working with a mortgage broker allows you to shop around for different rates from multiple lenders. Brokers may also help homebuyers having trouble qualifying with a specific bank. The lender and the borrower agree upon commissions.

When working with a broker, ask these questions:

  • How many lender quotes did you get, and why did you select this specific lender as the best?
  • What fees and commissions should I expect, and who will pay them – me, the lender, or both of us?

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The best mortgage for you is one that considers your ability to achieve your borrowing goals responsibly while taking into account your unique background and circumstances.

While many people choose their mortgage as an afterthought, getting the right one can ultimately save you thousands of dollars.

It’s essential to assess your financial situation and budget before getting a mortgage. Moving forward, determine the best loan type based on interest rates and the duration of your loan. Make sure to compare quotes and estimates from multiple lenders for more negotiating power.

If you’re not sure how to navigate the lending process, get in touch with me, Nancy Braun of Showcase Realty. My team will gladly help you throughout your home buying process, from finding the right mortgage to paying your closing costs.

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Nancy Braun, Real Estate, showcase realty

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