How do I find a good rate?
Generally speaking, rates within a specific type (fixed vs adjustable rate) and term length (15, 20, or 30 year terms) will tend to be very competitive within a given region. You should expect to see most lenders within about .25% of each other.
The bigger impact on what an interest rate will be is determined by the credit score and the percentage of the purchase price that you put down for a down payment. So, rather than looking for a good rate, it’s often better to work on your credit and let the good rate find you.
How do I avoid “junk fees?”
There are always fees that you wouldn’t expect (unless you are involved in the real estate business). Most fees are predetermined by local governments for recording fees, title and escrow companies for their work, and the lender’s fees. Lenders’ fees either tend to be a flat fee determined by the company or as a percentage of the loan amount charged as “points.” Title and escrow companies’ fees are usually determined by a base amount plus a percentage related to the loan amount, and local governments determine their fees based off budgetary needs.
Having said that, there are fees that appear as “junk.” Requirements for checking flood zones, running a credit report, checking on tax returns, and other fees are often imposed on the lender who then passes the cost to the borrower as a standard practice. This makes some of the fees seem like junk, but they tend to be unavoidable regardless of the lender. The true “junk fees” that can be avoided are usually solved by having a lender that you know, who has worked in the area of your future home, and who can then work with companies removing fees that may be required for other regions of the country but may not be required where your future home is found.
Types of Loans
Since the housing market crash of a decade ago, interest rates have been near historic lows. This makes fixed rate mortgages more appealing because they are the safest bet. Most people choose a 30-year fixed rate mortgage to keep their monthly payment low and borrowers have the option of paying more to minimize the amount lost to interest. A 15-year mortgage saves a great deal of money on interest because rates are lower and it’s being paid out over a shorter period of time, but the monthly payments will be higher.
Despite their bad reputation, there are situations where an Adjustable Rate Mortgage (ARM) may be helpful for a buyer if the borrower is informed. If the loan amount is very high (think $400,000+) even slightly lower rates can save people a lot of money while the rate is still “fixed” for an initial time (usually, 3, 5, 7, or 10 years). Regardless of the loan amount an ARM may be a good option if the borrower thinks it unlikely that they will be in the house for a long period of time. The safety valve is that borrowers can nearly always refinance into a fixed rate mortgage down the road if they choose to keep the home.
Need More Help?
The best way to have these questions answered is to speak with a knowledgeable mortgage broker or loan officer licensed through the Nationwide Multistate Licensing System and Registry. Ask your realtors for the mortgage professionals that they would recommend. These people have special training and education to help you prepare and walk you through the mortgage process.