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House hunters, here are 5 secrets to getting the best home loan

Published: Thursday, October 19, 2017 @ 5:01 PM
By: Mary Caldwell - For the AJC

Getting a home mortgage loan is one of the most important financial commitments most people will ever make, since the terms of your loan can affect your finances in a big way for years to come.

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Start shopping for a loan before you actually begin looking at homes, since this lets you know where you stand and gives you greater negotiating power with sellers.

The following are five important things you should know before and during the home loan shopping process:

Know your credit score

Your credit score has a great effect on how easily you'll be able to get a home loan as well as on the interest rate you'll pay, according to Realtor.com. Your score takes into account your credit history, current debt and other factors. Lenders use it to determine your credit-worthiness.

Check your credit report before you start the process of applying for a home loan. This way, you can correct any errors – which do occur sometimes. If your score is particularly low, you may want to delay applying for a loan until you can improve it.

Research, and research some more.

Your Realtor may recommend a mortgage lender, and it doesn't hurt to use this as a starting point. However, if you fail to shop around, it could cost you a substantial amount of money over the years.

Consumer Reports recommends casting a wide net when you're shopping for a home loan. Try large national banks, regional banks, credit unions, online banks and mortgage brokers, but be sure to compare them within a few days of each other since rates can fluctuate.

Make sure you’re making an accurate comparison on loan quotes.

When you're getting quotes from several lenders, you'll need to make sure you're making an apples-to-apples comparison, according to CBS News. The loan terms should be the same, and so should the loan type (variable or fixed-rate, for example).

"Points" are also an important consideration. These upfront fees reduce the interest rate on your loan, and you should get each potential lender to give you a rate with and without points so you can make an accurate comparison.

Ever heard of PMI? You might need to get to know it.

If you're not making a down payment of at least 20 percent, your lender will usually require PMI, or private mortgage insurance. Although you're the one paying for the insurance, it doesn't protect your interests. Instead, it protects your lender in case you default on your loan.

Forbes recommends saving up for a 20 percent down payment if you can, since PMI adds to your monthly costs. 

Prepare yourself for closing costs.

Be aware of the closing costs you'll pay as part of your loan, Investopedia recommends. You'll be stuck with some of them, but others can sometimes be negotiated. These include application fees, underwriting fees, mortgage rate lock fees and loan processing fees.

As a starting point, Bankrate lists the average closing costs by state, so you can have an indication of how reasonable your potential lender's fees are.