Purchasing a home is an enormous financial obligation. It involves significant upfront and ongoing costs, with mortgage interest rates and associated fees making a substantial impact on your monthly payments.
To guarantee you receive the lowest interest rate, it’s best to shop around. Your credit score, loan terms and mortgage size all influence which rates you receive.
There are several ways to do this, including shopping online, speaking to your bank or other financial institution you have an account with or getting referrals from friends and family. Many banks offer special programs for their customers which may grant you a better rate if you set up automatic payments or keep certain business or investment accounts with them.
One way to secure a competitive rate is by comparing lenders who specialize in your type of loan and are located nearby. Additionally, it’s wise to assess each lender’s track record and customer satisfaction rating.
You can obtain a detailed overview of all costs associated with your mortgage by reading the “Fee Estimate” section on your loan estimate document. This official three-page document lists your quote interest rate, fees and other associated costs for your loan.
It’s essential to note that this fee estimate only serves as an approximate guide and you will likely receive a final closing cost quote from your lender after all paperwork has been completed. In some instances, fees will be included in the total APR; in others they won’t.
Closing costs are an integral part of the mortgage process and typically range between 2%-5% of your home’s purchase price. However, some lenders charge higher or lower closing costs than others.
This information can be invaluable as it can help you decide if the loan you’re considering is suitable for you. Furthermore, knowing this information could prevent unpleasant surprises in the future if you discover you’ve spent more than expected.
Other fees you should be aware of include origination fees, credit report fees and certain closing costs. These costs are applied when your application is evaluated, the loan initiated and the transaction closed.
Your APR does not include these fees, and they can add up quickly if not taken into account when making your overall calculation.
If you choose a government-backed loan such as an FHA or VA mortgage, there will also be an up front “upfront fee” to cover bank charges associated with wiring your funds. This fee could amount to $250 and should be reviewed to see if the lender is charging an unreasonable amount.
Additionally, be aware of any prepayment penalties associated with your mortgage. Some mortgages have substantial penalties for early refinancing or paying off the loan before interest rates rise.
In addition to your loan’s interest rate and mortgage insurance, there are other fees you must pay for a mortgage, such as points and lender credits. Points (also referred to as discount points) are money paid directly to your lender in exchange for a lower interest rate.
