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Buying a new house is a substantial investment, and so, it’s not surprising that the process can be quite demanding. According to a report released in 2020 by Nerdwallet, about 40% of American citizens, which amounts to around 100 million individuals plan on purchasing a house in the coming years.
If you happen to be one of them, the first step, and arguably the most important one, is to figure out the amount of mortgage you can afford. The next step is to look for an ideal lender along with a suitable mortgage rate. However, landing the best mortgage rate in Atlanta usually begins by understanding some crucial factors. In this read, we are going to look at some of the most important questions to ask during the process:
Should I Go For an Adjustable-Rate or Fixed-Rate Mortgage?
Mortgages come in either fixed or adjustable interest rates. The former locks you into a constant interest rate whereby you’ll be required to pay through the course of the mortgage. Part of the loan payments will go towards settling the principal while the interest stays constant throughout the mortgage term. However, it is important to bear in mind that insurance, property taxes, and other expenses may or may not fluctuate.
As for adjustable-rate mortgages (ARM), the interest rates charged change over time. An adjustable-rate mortgage often begins with an introductory period of 3, 5, 7, 10, or custom time frames during which the rate will remain steady. After this, the rate is bound to change periodically.
Most adjustable-rate mortgages offer low introductory rates but may go up once the introductory period is over. This results in an increase in monthly mortgage payments, which can be pretty substantial in some situations.
What Are The Closing Costs?
Closing costs refer to the fees charged by both lenders and third parties. They usually do not affect the mortgage rate, unless you pay the discount points, but they tend to affect the pocketbook. More often than not, closing costs amount to 3 percent of the buying price of the house, and the payments are made when you finalize or close the home purchase.
Closing costs consist of several varying fees, including the appraisal fees, processing and underwriting charges by the lender, title insurance, etc. Typically, you are allowed to look for lower fees, and the Loan Estimate form should come in handy in letting you know the services you should consider in order to reduce the fees.
Should I Pay Discount Points?
These are basically the fees you pay at the start in order to reduce the interest on your mortgage. A discount point usually equals 1 percent of the principal, lowering the rate by around 0.25%, depending on the mortgage lender. If your mortgage comes with 4.5 percent interest, you may be able to pay discount points amounting to $2,000, in order to get a 4.25 percent reduction rate. Paying discount points allows you to shell out several thousand dollars upfront, and thus save a few dollars in monthly payments.
Keep in mind that it takes several years for the savings to substantially add up and go beyond the payment you made at the start. This is known as the break-even period and varies depending on the cost of discount points, loan amount as well as interest rate. Your break-even period will vary between 7 and 9 years and so, if you do not plan to have a mortgage for that long, it’s advisable to skip the discount points.
Should I Go For First-Time Homebuyer Programs?
Before you settle for a particular home loan, it’s important to first figure out whether you are eligible for special programs that will make the buying process less expensive. Most states provide some form of assistance to first-time homebuyers as well as repeat buyers. Some of these programs include down payment help, which is usually combined with favorable interest rates and tax breaks. Some programs are designed to help home buyers in professions like teachers, veterans, and first responders, while others are geographically targeted to aid the growth of a certain region, usually rural areas.
How Much Down Payment Should I Make?
Some professionals such as veterans may be eligible for mortgages that allow for 100 percent financing and don’t require a down payment. Other homebuyers may qualify for loans that only call for down payments of as little as 3%.
Here are common rates of common types of home loans :
1. FHA Loans– Home loans provided by the Federal Housing Administration usually allow down payments of as low as 3.5%. These mortgages also tend to be more forgiving in regards to low credit scores, but you need to pay home loan insurance for the life of the mortgage.
2. USDA Loans– For people residing in rural regions, the Department of Agriculture may guarantee a low or no down payment home loan and assist with the closing costs.
3. VA Loans– If you or your spouse is active in the military or a veteran, you may be eligible for a home loan guaranteed by the Department of Veteran Affairs.
4. Standard Loans that Require 3% Down Payment- Some homebuyers may be eligible for standard loans that are not insured by the government but only require a down payment of 3%. Generally, these home loans are designed for low-to-moderate income citizens or first-time borrowers. Typically, they charge for private mortgage insurance (PMI) which can be cancelled once you hit over 20 percent equity in the property.
How to Compare Mortgage Offers
When looking for the best home loan deal, you need to make as many comparisons as possible. Here are some tips for that:
-Apply for a mortgage with varying lenders. Different mortgage or financing companies will have varying rates. The more you shop, the higher the chances of getting a great deal. In addition, consider shopping with varying types of lending institutions such as banks, credit unions, and even online lenders.
-You can do the closing costs comparison using a Loan Estimate application or service. Every lending or financing situation is mandated to provide a Loan Estimate form with detailed information on each product’s terms and fees. A Loan Estimate is meant to simplify the mortgage rate comparison process among varying lenders.
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