There are many factors when it comes to acquiring a home loan. You have the length of the loan, points, and closing costs.
When comparing a loan it’s best to compare apples to apples. For example if you are borrowing $400,000 and a lender quoted you a rate of 4% with 1 point then that loan will cost you $4000. Each point equals 1% of the loan value. If another lender is quoting you a loan of 4.25% with no points you would have to compare how many months it would take until you are actually saving money. At 4% your monthly payment would be approximately $1333 per month and at 4.25% it would cost you approximately $1416 per month. The difference In your payment would be around $83 per month. The lower payment costs you an upfront fee of $4000. You would have to hold the loan for around 48 months before you start realizing the savings. Within those 4 years if the rates go down you could be losing money if you decided to refinance your loan. If the rates go up and you hold your loan for more than 48 month then you can save dramatically over the life of the loan.
Usually the shorter the loan the lower the interest rate. An arm could be a good choice if you don’t plan on being in the home for too long. For example, it could be a good loan for someone flipping a home.
There are different ways to obtain a loan and different types of lenders will have different rates and terms. It’s a good idea to shop around for a loan through the first 3 portals.
Direct lenders are normally large banks like Bank Of America or Usbank. Sometimes they will hold and service the loan and other times they will sell off the note to investors
Mortgage broker will go out and shop rates through their investor network.
If you belong to a credit union they will many times have some of the best rates and terms
Hard money lenders usually charge a higher rate and more points upfront. They take on riskier loans that direct lenders, mortgage brokers or credit union won’t touch.
It’s also important to shop for rates within the same time frame. Rates are constantly changing and a rate you received yesterday might not compare with the rates from today.
When a lender pre-approves you for a loan they will be looking at your credit report, employment, reserves, and your debt to income ratio. Be prepared to provide tax records, payment stubs, and bank records.
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