How to Evaluate Mortgage Loan Offers

In today’s world of crazy advertising tactics and manipulative sales techniques, sometimes it’s hard to see the genuine value of things — especially when it comes to mortgage loans and finance. Daily messages such as “This is the best loan for you!” and “The lowest rates ever!” compile the Internet daily. However, instead of giving into these offers, taking the time to carefully plan and strategize for your mortgage can prove to be way more beneficial in the long run.

When shopping around for the best rates, it may seem like a no-brainer to find the lowest rate you see and go with it, but this can also backfire. The lowest rate typically comes with the highest closing cost, and it usually does not benefit you to pay a higher closing cost to achieve a lower rate.

There is no requirement for a lender to detail how much your closing costs are when they initially quote you an interest rate. There are some unscrupulous lenders that will quote just the interest rate and conveniently leave out the cost associated with obtaining that interest rate.

To avoid a being a victim of a faulty rate quote, you can use the Annual Percentage Rate (APR) as an indicator of how much the closing cost associated with the rate you were quoted really are. In addition, one of the biggest factors to keep in mind relates to the type of mortgage loan you receive.

Mortgage Loan Type

One of the biggest influencers on monthly payments and interest rates is what type of mortgage loan you’re interested in. A lot of factors need to be taken into consideration when choosing a right loan type, such as your ideal budget and how long you plan to stay in the home. Some of the most common loan types include:

30 year fixed rate loan (also available as 20 year)

  • Offers lowest payment of fixed straight loans
  • Provides greatest payment stability
  • Greatest flexibility to accelerate mortgage payoff
  • Ideal for people who plan to be in their home for 10 or more years

15 year fixed rate loan (also available as 10 year)

  • Lowest fixed rates, but highest monthly payments due to shortened timespan
  • Best way to quickly build equity
  • Ideal for people nearing retirement

Adjustable Rate Mortgages (ARMs)

  • Initial interest rate is lower than fixed rate
  • After initial fixed-rate period, interest rate and monthly payment can increase or decrease depending on the market
  • Ideal for someone who is not planning to stay in home for a long period of time

Before evaluating mortgage loan offers, it’s important to have an ideal loan type in mind so that you’re not otherwise influenced by a lower rate that may not benefit you in the long run.

Amount to Borrow

It’s also important to have an ideal mortgage loan amount in mind before shopping for a lender. Using a mortgage calculator is helpful in determining and ideal budget range that would work for your mortgage. In addition, deciding a timeframe you’d like to use for your mortgage is helpful in determining the right amount to borrow. For example, you may want to take into account whether you’d like to have slightly larger monthly payments in order to have a shorter loan term or vice versa.

Credit Score

Although it may seem like the entire universe revolves around how good or bad your credit score is, that’s not entirely true. When it comes to mortgages, there are different options for varying credit scores. On average, the best rates are usually given to those with a credit score of 740 or higher. If you have a below average credit score, you may want to consider using a FHA insured loan.

Interested in finding the best rate for your mortgage loan? Get a rate quote today.

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