Shopping for a Mortgage – A “How-To” Guide
When you’re ready to invest in a home, you’ll get the same piece of advice from just about everyone… “Make sure you shop around for your mortgage.” It’s a solid recommendation that you should definitely follow, but many potential homebuyers have absolutely no idea where to begin. Unless you’ve comparison-shopped the mortgage market before, figuring out how to find the best lender can feel like a mystery.
At Ernest Homes, we want to make sure that every homebuyer is prepared to tackle this important step with confidence. We’ve put together a handy “cheat sheet” that outlines the steps you need to take to find the mortgage that best fits your needs.
- Decide which type of mortgage is best for you.
There are three general types of mortgages: the fixed-rate mortgage, the adjustable-rate mortgage, and the balloon payment loan. A fixed-rate mortgage maintains one interest rate for the entire duration of the loan. This is ideal if you must work within a strict monthly budget and prefer consistent housing costs.
An adjustable-rate mortgage (ARM) often begins with a lower interest rate, but it may fluctuate several times throughout the life of the loan based on market conditions. If you maintain an emergency fund and can handle potential rate increases, this may be a good option.
A balloon loan comes with lower monthly payments upfront, but the final payment due at the end of the loan is significantly larger. This type of mortgage works well for buyers who know they will be relocating or selling their home within a shorter timeframe.
- Choose the length of the mortgage.
Common mortgage terms are 15, 20, 25, or 30 years. Shorter terms mean higher monthly payments but substantial interest savings over time. Longer terms reduce your monthly payment but extend the life of the loan. Consider your long-term financial goals, comfort level, and desired monthly budget when choosing your term.
- Make your point.
If you plan to be in your home for many years, consider “buying down” your interest rate by paying points. One point equals one percent of your loan amount. This upfront investment can reduce your interest rate and save you money over the long haul. If preferred, the cost of the points can often be rolled into your loan.
- Check your credit.
Your credit score plays a major role in the mortgage process. The closer your FICO score is to 800, the stronger your negotiating position with lenders. Make sure you’ve done everything you can to make your credit profile appealing. If you need guidance on improving your credit, review our article on credit repair tips.
- Start close to home.
Begin by checking mortgage rates with the financial institutions where you already have accounts. Banks, credit unions, and savings and loan institutions often offer competitive programs or discounts for existing customers.
- Turn to the experts.
Mortgage brokers can help you compare rates across multiple lenders. Ask for recommendations from friends, family, and coworkers who have recently purchased a home in your market. Online reviews can also be helpful. Brokers act as “wholesalers” who streamline the rate comparison process for you.
- Work with your builder.
When purchasing new construction, be sure to ask about preferred lenders. Most builders maintain relationships with trusted lenders who can make financing easier and sometimes offer incentives. At Ernest Signature Custom Homes, we work hand-in-hand with a curated group of lenders who are committed to helping you finance your dream home.
If you have financing questions, our lending partners are here to help:
- Tracey Craven – Renasant Bank
912-660-9818 | 912-660-4317 Cell - Eric Glick, New American Funding
912-308-5931 - Brad Bixler – Ameris Bank
678-549-4460 Cell | 912-201-7309 Office
- Follow up for best results.
After securing your mortgage, take time to review your closing costs. These fees vary widely among lenders and typically range from 3% to 6% of your mortgage. Credit unions often provide more favorable closing cost structures.
You’ll also receive a good faith estimate, which gives an itemized breakdown of all closing expenses. Review it carefully to understand exactly where your money is going.
With a step-by-step plan in place, you can confidently choose the mortgage that best meets your needs while reducing the stress often associated with home financing. If you have any questions about shopping for a mortgage, don’t hesitate to reach out. You can contact us via email or call our team at 912-660-9673 today!
