November 7th, 2012 8:17 AM by Nathan Rufty
There are many things to take into consideration when shopping for a home loan. Looking for a loan is a great decision as it will ease your income and ensure you also get the home you desire. This means if things go right you will have your home in no time.
1. Length of the loan/mortgage
What length of time of the home loan do you want? Are you looking for a 30-year home loan? This kind of period will definitely give you a lower monthly payment that can help you adjust your income or budgets. With increasing home prices, getting a 30-year home loan will be good and you can afford a slightly expensive home. However, you will pay more interest on the loan as equity will build at a slow rate than 10 year or 20-year home loan.
2. Fixed or adjustable rate
The fixed interest rate is more convenient as the interest at the time of loan application will be locked on the lifetime of the loan. This is a stable loan and it is more advisable to new homebuyers. On the other hand, adjustable interest rate is variant. This means the interest is not locked on the home loan, but changes with the prevailing interest rates of the market. This means if the interest goes up, yours too will definitely go up. In short its dictated by the market. Therefore, you can expect the interest rates you are paying to go upwards and downwards depending on the market.
3. Closing costs
How are the closing costs? Is it more like an out of the pocket kind of expense for you? Find out if the costs of court fees, administrative issues and title changes are covered by the home loan company.
4. Credit score
The lenders will definitely check your credit score. This will help them arrive at a decision on what amount to give you and whether or not to give you. Low credit score will seal your fate while a high credit score will open more doors for better interest rates.
5. Interest rate is determined by credit score
Interest makes up the monthly payment amount determined by the principal amount. High credit score will give you low interest rate on the home loan. This means even your monthly payment will be low.
6. Good credit score can save you money
The major difference between a bad score and good score is the interest rate. Take a case of 7.2% and 5.5% in the later, you pay more and in the former, you will pay less. This will save you a lot of money if you had a good score.
7. Scores comes from buyers actions
The score is obtained from your credit reports, which comes from personal actions, previous credit use and financial history. It entails how you have been managing your credit. If you have good behaviors, you will definitely have a good score.
8. Generation of credit score
The score cannot be generated mysteriously. The only way to improve your core is managing your credit score with your overall actions and decisions you make every day. This is by paying all your bills in time, maintaining low balances on credit card accounts, sparingly using your credit. In few years time your score will have improved much better.
9. FHA loan
You can alternatively get a home loan from FHA for your refinancing. This will help you maximize your savings.
10. Compare interest rates of lenders
Ensure you compare the interest rates charged by lenders to ensure you get the best interest rate. Different lenders charge different interest rates. In some cases, you may pay more than the other.