For most Americans, buying their own home is the largest financial obligation they will ever take on. Many Americans only buy one or two homes in their entire lives, so getting the financing right is very important right at the start. With everything being online these days, it is easier than ever to shop for a mortgage online and to get the best interest rate. But there are some important things to remember as you are looking at mortgage interest rates online:
Many of the low rates that you will see in online advertisements for mortgages are for people with 740 credit scores. They are the ones that are going to get those 3.5% interest rates for 30 years. But if you have had a few late payments in the last year, or if you have a mortgage payment more than 30 days late, your credit score will take a beating. Having late payments on your record in the last year could drop your score by 30 points or more. If you have a credit score in the 640s, you can still qualify for a mortgage, but your rate will be higher. So, you need to keep this in mind as you are looking at mortgage rates online. You may want to look at FHA-approved mortgage lenders online; with a 640 credit score, you still can qualify for a low interest rate, as FHA loans have low rates even if you have average credit.
This may seem obvious to many home buyers, but many borrowers are so excited to get a loan that they may not look around at more than one lender. A word to the wise: Different lenders may offer different mortgage rates to people with the same credit score. You should look at least three different lenders and compare the same type of loan that each company offers. You may find an interest rate ½ a point lower, which can make a big difference in interest payments as the years go by. Yes lenders can charge higher home mortgage rates when they want to make a higher commission and that's why it's your job to shop for the best mortgage rate currently available.
A common mistake is to look only at the interest rate that the lender charges as you do your online investigating. However, you should also be closely looking at any processing charges and closing costs, which can vary depending upon which loan product you choose.
Another thing that can vary from loan to loan is how long the interest rate is locked on the loan when you are in underwriting. Some lenders may have a 30 day lock, and others could have a 60 day lock. This can make a difference if you are getting a home in a volatile interest rate period. You could end up paying significantly higher if the lock in period expires and the loan is not closed yet.
When you are shopping for a home loan, every time you apply for a loan, it can create a hard inquiry on your credit report. This will generally cause your score to dip a few points. So, you may want to limit the number of times a mortgage lender is hitting your credit report. However, these days, if you are shopping for a home loan within a 30 day period, the credit bureaus may only count one of those as a hard inquiry. Just be sure that you restrict your loan shopping to a 30 day period and this should reduce the chances of multiple inquiries hitting your report. The FHA still offers competitive rates on second chance loans but most conventional programs charge higher interest when credit is damaged.
As you shop online, you may find that you will get lower mortgage interest rates if you put down 20%. But for many people, putting down that much money will eat away most of their savings. It is for that reason that many Americans today opt to put down 5% or even less; there are many FHA-approved and some conventional lenders that will allow you to put down these small amounts. You will need to pay private mortgage insurance each month, which adds $100-$200 per month to your mortgage, but this allows you to keep more money in your pocket. Also note that the more you borrow and less you put down, the more interest you will be paying over the life of the loan. But it all comes down to deciding how much you can afford to put down, without completely depleting your savings.
As you probably know, the longer your loan is, the more interest you will pay. The difference in interest paid on a 15 year loan and a 30 year loan is staggering; on a $200,000 property, you will pay at least double the amount of interest on a 30 year loan as you would on a 15 year loan. Another major consideration is that if you get a 15 year loan, you will also be able to get a slightly lower interest rate, which makes a significant difference over the life of the loan.
When you are about to finalize your home loan, you should look carefully at the closing costs that are being charged. Depending upon your state, you could pay 3%-5% in closing costs. You should expect to see fees for processing, appraisal, title insurance and charges for underwriting. You should ask each lender you are considering to give you a good faith estimate of the closing costs that will be charged. Being able to shop for mortgage rates online makes getting a home loan more convenient than ever. However, you need to do your due diligence on any loan that you are considering, so you get a full picture of what the loan really costs in all of its parts, not just the interest rate. If you do that, you will be able to get the best deal on your loan.
First Time Home Financing.com does not offer mortgages or direct financing. FTHF.com is a website that offers information about house financing and does not promise that all applicants will be approved for the new FHA loan program with lower mortgage insurance. This website and its affiliates have no affiliation with the FHA or any other government agency. This website offers information about lending services by publishing editorial content related to the U.S. finance sector.
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