Should I Shop Lenders?
When buying a house, for many purchasers, the shopping ends once they’ve found their dream home. As exhausting - and ultimately rewarding - as that search may have been, you could very well be missing out on even greater benefits, if you don’t also shop available lenders.
Just as with any other purchase, failure to shop around the marketplace before settling on a lender is apt to cost you money. And when it comes to mortgages, those costs can really add up. For example, on a 30-year mortgage, a difference in just one-half of one percent interest would increase your monthly payment by $60/month, which would translate to paying an additional $3,500 in just the first five years.
The only way to ensure that you’re getting the best price is to shop around first. That goes for any purchase, from the clothes on your back to the roof over your head. And with home loans, the bottom line price is based on a lot of factors that vary from buyer to buyer as well as from one lender to another.
Fixed vs. Adjustable Rates
The interest rate you get when buying a home can be fixed or adjustable throughout the term of your loan. There are advantages and disadvantages to both rates, depending on the market. A fixed rate will lock you in to an interest rate that won’t change for the entire term. This can protect you from increases in the future, but it can also prevent you from taking advantage of a “softer” market, when rates may actually go down.
Rooting Out the Hidden Costs
If your lender is also a broker, you may be paying additional money on top of the cost of the loan to buy your new home. Brokers are paid fees that can add to your closing costs, or increase your mortgage payments.
Home loans can also be a minefield of fees, “points” and other hidden costs that can turn what sounds like a good deal into a costly error. Underwriting fees, closing fees and broker points should be clearly laid out by the lender for ease of comparison.
Lenders may require you to put down as much as 20% of the home price to secure a loan. For a $200,000 home, that means $40,000 out-of-pocket for your dream house. If you shop around, you can find lenders who will accept much lower down payments. It may mean a higher mortgage payment, but can also mean more available funds to invest in upgrades or any potential repairs to your home. High down payment requirements often rob first time buyers of critical emergency savings that no one should be without.
Securing a lender early in the process can grease the wheels for you in the long run. If you can establish a working relationship with a lender as well as a pre-approved loan amount, you’ll have the advantage of knowing how much house you’re approved for, and a lender in whom you can trust. Having the monies in place before setting about to buy a home will allow you the peace of mind to focus on finding the house you want. It will also make a positive impression on sellers in a competitive market, when they know you already have been approved for financing.
Look for Different Types of Loans
Your lender should offer a number of alternatives to choose from, programs that fit your situation. For instance, VA loan options, FHA and USDA loans. A loan insured by the Federal Housing Administration lowers the risk to the lender in the event of non-payment by the borrower for any reason. This can benefit first-time buyers by easing credit requirements, lowering down payment requirements and offering the advantage of assumable loans. That means, a new buyer can assume the loan of the current homeowner. It also has the added benefit of demonstrating to sellers that you’re serious about buying, which can be further advantageous to you in the negotiation stage.
Your lender or broker should be able to write out plainly all the costs and fees of a home loan, and have a lock-in rate they will guarantee once you’ve agreed to terms. Ask for any special rates or discounts available, then shop and compare.
Kuleav, Sergi “Nearly half of mortgage borrowers don’t shop around when they buy a home”, www.consumerfinance.gov. 13 Jan. 2015.
If you’re looking for a home in Arizona, contact the lending team at Galaxy Lending Group. We have multiple loan plans available for first time buyers, refinancing options for current homeowners and 30 years’ experience in the business.