Mortgage rates are the interest you pay on the remaining balance of a mortgage loan. When you borrow the money, you promise to repay the loan at an agreed-upon interest rate. That’s the all-important mortgage rate borrowers are so interested in.
It’s just one factor, and no doubt the most important to consider when you are trying to determine how much a loan will cost you. To borrow the money, the lender will charge you a fee, expressed as an interest rate assessed for the life of the loan.
This article will expose you to everything you should know about how to get a mortgage, picking a perfect mortgage rate, and the current rate trends.
What is a Mortgage?
A mortgage is a type of loan designed for buying a home. Mortgage loans allow buyers to break up their payments over a set number of years, paying an agreed amount of interest.
Mortgages are also legal documents that allow the mortgage holder to (re)claim the property if the buyer doesn’t make their payments.
It also protects the buyer by forbidding the mortgage holder from taking the property while regular payments are being made. In this way, mortgages protect both the mortgage holder and the buyer.
How to Get a Mortgage
Because a home is usually the biggest purchase a person makes, a mortgage is usually a household’s largest chunk of debt.
Getting the best possible terms on your loan can mean a difference of hundreds of extra dollars in or out of your budget each month, and tens of thousands of dollars in or out of your pocket over the life of the loan.
It is important to prepare for the mortgage application process to ensure you get the best rate and monthly payments within your budget.
Here are quick steps to prepare for a mortgage:
Build your credit
Make a budget
Set savings aside for both down payment and expected monthly payments
Research the best type of mortgage for you
Get preapproved
Types of Mortgages
There are many different types of mortgages and it’s important to understand your options so you can select the loan that’s best for you: conventional, government-insured, and jumbo loans, also known as non-conforming mortgages.
1. Conventional Mortgages
These are loans that Fannie Mae or Freddie Mac, ultimately buys the big government-sponsored enterprises that play an important role in the lending market.
Fixed-rate Mortgages: A fixed-rate mortgage has an interest rate that doesn’t change throughout the life of the loan. In that way, borrowers are not exposed to rate fluctuations.
For example, if you have a fixed-rate mortgage with a 3.5 percent interest rate and prevailing rates shoot up to 5 percent the next week, year or decade, your interest rate is locked in, so you don’t ever have to worry about paying more.
Of course, if rates fall, you’ll be stuck with your higher rate. There are many types of fixed-rate mortgages, such as 15-year fixed-rate, jumbo fixed rate, and 30-year fixed-rate mortgages.
Adjustable-rate Mortgages: Adjustable-rate mortgages, or ARMs, have an initial fixed-rate period during which the interest rate doesn’t change, followed by a longer period during which the rate may change at preset intervals.
Unlike a fixed-rate mortgage, ARMs are affected by market fluctuations. So if rates drop, your mortgage payments will drop. However, the reverse is also true — when rates rise, your monthly payments will also rise.
Generally, interest rates are lower to start than with fixed-rate mortgages, but since they’re not locked into a set rate, you won’t be able to predict future monthly payments.
ARMs come with an interest rate cap above which your loan cannot rise.
2. Government-insured Mortgages
Three agencies: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) back FHA Loans, VA Loans, USDA Loans: Government-insured or government-backed loans.
And the U.S. Department of Veterans Affairs (VA loans).
The U.S. government isn’t a mortgage lender, but it sets the basic guidelines for each loan type offered through private lenders.
Government-backed loans can be good options for first-time homebuyers as well as folks who have a lower down payment or smaller budget.
The requirements are usually looser than those for mortgages not secured by the government. These are known as conventional mortgages.
The interest rates on FHA, VA, and USDA loans are similar to conventional mortgages, but fees and other costs are higher.
3. Non-conforming Mortgages
Jumbo Mortgages: Jumbo mortgages are loans that exceed federal loan limits for conforming loan values.
For 2022, the maximum conforming loan limit for single-family homes in most of the U.S. is $647,200, and $970,800 in more expensive locales, according to the Federal Housing Finance Agency.
Jumbo loans are more common in high-cost areas and generally require more in-depth documentation to qualify. Jumbo loans are also a bit more expensive than conforming loans.
Check Out The Current Mortgage and Refinance Rates
How do I Find and Compare Current Mortgage Rates?
Step 1: Determine what mortgage is right for you
When finding current mortgage rates, the first step is to decide what type of mortgage best suits your goals and budget. Most borrowers opt for 30-year mortgages, but that’s not the only choice.
Typically, 15-year mortgages have lower rates but larger monthly payments than the more popular 30-year mortgage.
Adjustable-rate mortgages usually have lower rates, to begin with, but the downside is that you’re not locked into that rate, so it can change over the life of your loan.
Step 2: Compare mortgage rates
Once you decide which mortgage type fits your needs, you can begin comparing current mortgage options. There’s only one way to be sure you are getting the best available rate, and that’s shopping as many lenders as possible.
Aim for a minimum of three lenders and consider working with a mortgage broker. Check for APR, interest rates, APRs, upfront fees, and monthly payments for the amount you choose.
Mortgage Industry Rate Insights
Most experts expected mortgage rates to rise this year, but it happened faster than many predicted, averaging more than 4.5 percent for 30-year fixed loans in late March.
Rates could be heading to 5 percent. That means it’s more important than ever to compare rates before selecting a lender.
Although today’s rates aren’t crazy by historical standards, they are higher than they have been in three years, and that’s likely to have a few knock-on effects on the housing market. Though it probably won’t cause housing prices to decline significantly.
What is the Minimum Credit Score to get a Mortgage?
Lenders reserve their most competitive rates to borrowers with excellent credit scores — usually 740 or higher. However, you don’t need spotless credit to qualify for a mortgage.
Loans insured by the Federal Housing Administration, or FHA, have a minimum credit score requirement of 580, although you’ll probably need a score of 620 or higher to qualify with most lenders.
(While FHA loans offer competitive rates, the fees are steep.)
To score the best deal, work to boost your credit score above 740. While you can get a mortgage with poor or bad credit, your interest rate and terms may not be as favorable.
Top Mortgage Lenders
1. Better Mortgage | Simple, Online Mortgage
Better Mortgage | Simple, Online Mortgage (Better Mortgage) is an online mortgage lender offering a range of loan products in the majority of states in the U.S.
Strengths: Better Mortgage | Simple, Online Mortgage can save you time and money with three-minute preapprovals and 21-day closings, on average, and no lender fees.
If you get more competitive mortgage rates from another lender, you can also take advantage of the Better Price Guarantee, in which Better Mortgage | Simple, Online Mortgage either matches that rate or gives you $100. The lender offers seven-days-a-week support by phone, as well, if you need it.
Weaknesses: If you’re looking for a VA loan or USDA loan, you’ll have to search elsewhere; Better Mortgage | Simple, Online Mortgage currently doesn’t offer these loan types.
Although the Better Price Guarantee can help you get a lower rate, it’s only available if you apply online directly through the lender.
2. Interfirst Mortgage Company
Interfirst Mortgage Company (Chicago Mortgage Solutions LLC) is a combo-direct mortgage lender, wholesale lender (meaning it works with mortgage brokers), and correspondent lender.
Strengths: Interfirst has a good rating from the Better Business Bureau and high marks from borrowers on Bankrate and elsewhere.
Plus, with its multiple business channels, the lender can offer several loan options for many types of borrowers.
Weaknesses: Interfirst isn’t licensed in every state, and if you’re trying to compare mortgage rates, you might have a harder time, since this lender doesn’t showcase rates publicly on its website.
3. AmeriSave Mortgage Corporation
AmeriSave Mortgage Corporation is an online mortgage lender, available in every state except New York, offering an array of loan products. Along with conventional loans and refinancing, the lender also offers government loans.
Strengths: Like other online mortgage lenders, AmeriSave Mortgage Corporation has some of the most competitive rates out there. The lender also doesn’t charge a separate origination fee.
Weaknesses: You’ll still need to pay a flat $500 fee.
Learn More About Mortgage Points
Mortgage rates are an important factor when considering which mortgage loan to take. This article has been able to state factors that will help you find the right rates for your mortgage loans and we hope it helped.
If this article was helpful to you, do well to share it with others, as this might be helpful to them as well.
For More Information, Click Here