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How to Choose the Best Mortgage

Knowing how much you can pay and shopping like a bargain seeker will help you get the right mortgage loan.

If only getting a mortgage was as much fun as getting a pair of sneakers, a tablet, or a big-screen TV. Isn't it worth an afternoon or two to find some bargains and save a hundred bucks? When searching for a mortgage, though, the time and effort taken to decipher jargon and submit to lenders might not be as thrilling.

You should, though, make things as painless as possible. The following are six steps to selecting the best mortgage loan.

1. Figure out how much you can afford

Given that this is a six-figure investment, you're probably curious if it's actually within your range. You should use a calculator to work out how much house you can spare. If you have a good credit score, lenders would be more positive than you are on how much house you can afford. Keep in mind that their job is to sell a loan, while yours is to repay it. So make sure there's enough money in your budget for fun.

2. Set a savings goal for the upfront costs

Lenders want you to be able to apply for a big loan, but they also want you to have funds set up for a down payment and a long list of closing costs. 

The down payment may sound daunting at first, but it's in your best interest to build up some immediate home equity by putting down as much as you can reasonably afford. With a small down payment and a possible decline in the real estate market, you might end up with a huge debt and a house worth less than what you owe. If you're compelled to relocate, this is not a safe place to be.

3. Consider the length of the mortgage loan

You actually choked a little bit the first time you heard the term "30-year mortgage," right? That's a promise for the long haul. However, 10- and 15-year loans are available, and some lenders also sell "write your own mortgage" plans with terms ranging from 10 to 30 years, according to John Pataky, an executive vice president at TIAA Bank.

Pataky suggests that if the budget provides for a larger balance on a shorter-term loan, you'll actually see two benefits: a substantial decrease in net interest cost over the duration of the loan and a higher mortgage rate.

4. Choose the right type of mortgage

The bulk of papers go through a slew of mortgage jargon at this stage. Just bear in mind that there are specific forms of loans open to borrowers:
  • With a military connection.
  • Who would like to live in a rural or suburban area.
  • Who have a lower credit score.
  • Who are buying a house that's a little — or a lot — more expensive than standard loan guidelines allow.

If you don't quite suit any of the above definitions, you're most likely a decent choice for the traditional loans that most lenders prefer.

5. Know how mortgage interest rates work

The interest rate, or the cost of borrowing money for your house, is another factor to consider when selecting the right mortgage loan. Rates on mortgages fluctuate a lot — every day, every day that the bond market is accessible. Without going all Wall Street on you, here's what you should know: You can either lock in your loan's interest rate for the long term or let it change once a year based on market conditions.

A fixed-rate mortgage with a rate that is guaranteed for the life of the loan may start out a little higher, than an adjustable-rate mortgage, or ARM, that moves with the economy. However, because of the lower ARM pace, After an initial period of three, five, seven, or ten years, it resets once a year and can be used anywhere. — in either direction (up, down, or sideways).

" You can lock in your loan's interest rate over the long term, or let it move with the market and adjust once a year. ”

Pataky says to ask yourself, "what are your intentions for this house?" Are you on a five-year plan and then expect to move up to a better house — or across the country?

"So you start with, 'what's the [estimated time] I plan to stay in this property, or retain a mortgage on this property,'" Pataky says.

The adjustable-rate mortgage can be a good choice if you are confident you can pass, refinance, or pay off the mortgage before the fixed interest on an ARM expires. If you live in a house for seven years and plan to remain, the interest rates available for a refinance with a fixed rate loan will be much higher at that time.

6. Shop mortgage lenders like you shop for shoes

The most critical method for finding the right mortgage is to shop three or four lenders. Shop as if you're looking for sneakers, or whatever it is that you're most excited to get a good deal on.

And the money you save on a home by checking around for the right mortgage rate and lowest origination charge will purchase you a lot of watches, smartphones, and big-screen televisions.

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