Purchasing real estate, securing a mortgage loan, acquiring refinancing and getting a second mortgage are enormous financial commitments that require finding the absolute lowest mortgage rate. This entire process can be extremely overwhelming, especially to a first time home buyer. At Greenville Mortgage Place, you have a team of real estate specialists who are dedicated to helping you on this journey. Here are some key factors to consider before starting:
Which Mortgage Type and terms is be best for you?
There are two main categories of mortgages:
1. The Fixed Rate Mortgage – The interest rate of the fixed rate mortgage is just like the name implies, fixed for the entire length of the loan. The only things that would cause the payments to fluctuate are taxes and insurance premiums, but the interest rate that you secured at the onset of the loan will remain the same throughout. Even though the fixed rate mortgage has a slightly higher interest rate, you get the benefits of fixed interest and principle payments.
2. The Adjustable Rate Mortgage – the interest and the payments that make up the adjustable rate mortgage (ARM) fluctuate over the life of this type of loan. The majority of these types of loans begin with a period in which the rate is fixed, and can be anywhere from five to ten years. At a given point in the loan, the rate then becomes subject to change based on several indices like the prime lending rate. Many first time buyers take advantage of this type loan because they can budget for a larger home while enjoying lower introductory rates. A lending professional will help you to choose the best mortgage loan based on your individual situation.
How Much Money (Down Payment) Should Be Put on the Property?
Equity or down payments on the property are a huge determining factor that helps to lessen the monthly payments on your new loan. In simple terms, the amount of money you owe versus the home value will help you to secure a better interest rate. Typically a down payment of 20% will put you in the best possible bargaining position for a loan, but simply shopping around will reveal some lending institutions are qualifying people with down payments that can be as small as 0 to 5%. The value of property minus your down payment, (equity position), of less than 20% will often require you add mortgage insurance into your monthly payments. Coming up with the most down payment while keeping money in reserve for emergencies will often land you the best loan terms and interest rates.
Paying Points and Buying Down the Interest Rate Up Front
Points are simply fees paid up front by the borrower to lower the overall interest rate. Usually in fixed increments of 1% (1 point), this is equal to a reduction of the overall interest rate of .0125% over the length of the loan. If you plan to stay in the home for a long period of time, buying points up front is a wise financial decision. The national average for homeowners is seven years in their home, so buying points in that situation is not a wise investment.
Hidden Factors to Be on the Lookout For
Your Greenville Mortgage Place lending team are experienced at finding the right lenders with different requirements that match perfectly with your individual situation. Keep in mind however that there are unique conditions that could apply and significantly affect the monthly costs to the new homeowner. The financial institution lending you the money for the home needs to be certain the property is protected, so they consider things like type of property: condominium, farm house, single family home, manufactured or multi-family homes, and flood zones. The interest rates are typically lower on single family homes not in a flood zone, so keep in mind a different style home in a flood zone could put the home at risk and cause you to have a higher interest rate.
The risk assessment of the lender can also be affected dependent on the occupancy of the home. If you plan on living in the home full time, you can expect a better interest rate than if you were staying in the property part time or renting it out to tenants. Investment properties and vacation homes often come with a slightly higher interest rate to ensure the property is fully protected.