To be a truly savvy buyer, you should consider several different factors in addition to interest rates.
There are at least five things you should review:
APR (Annual Percentage Rate)
Interest rates usually get the most attention, but pay very close attention to the annual percentage rate. The annual percentage rate, or APR, is the amount of interest on your total loan amount that you’ll pay annually, averaged over the full term of the loan. The interest rate is stated on the mortgage note and is used to calculate monthly payments. But, this may not reflect the overall cost of borrowing.
A lender offering you a lower rate for the same type of mortgage should be a no brainer, right? Well, you need to take into account all of the other costs associated with the loan, such as closing costs and origination fees. This is why it is crucial to look at the APR, which is intended to enable you to make a fair comparison of the real costs between different lenders. Lenders are required to disclose APR at application you can request that an APR be calculated for you before you apply.
Escrow Items – Taxes and Insurance
A lender may require escrow accounts for certain loan types, meaning you must pay the lender a certain amount each month to cover taxes and homeowners’ insurance. The additional money you pay monthly sits in an escrow account until your lender pays your bills on your behalf when they come due. Some homeowners prefer to pay those bills all at once but whether you’re required to have escrow funds depends on where you live, your loan-to-value ratio and other factors.
These are rare in the mortgage industry, but it is a good idea to find out if there are any financial penalties to paying off your mortgage early. Government-backed loans, such as FHA and VA loans, don’t have prepayment rules.
Prequalification is very different from approval. Lenders need to double-check financial information, employment status, credit scores and other important factors before giving your loan the go-ahead. Don’t change jobs or move your money around. Save all furniture buying until after your loan closes. If you have to make any huge financial decisions or changes, notify your loan officer before acting if possible.
It may seem strange, but you may not send your mortgage payment to the lender that originated your loan. It is common for lenders to sell their loans and the right to service them. This is neither a good or a bad thing, but you might want to know what your lender intends to do with your loan after closing. The company servicing your loan will be who you turn to if you run into any problems paying your mortgage on time. It is important to know who will be responsible for processing your payments and making sure your tax and insurance bills are paid on time if you are paying them with your monthly payments. Companies are legally obligated to notify you regarding this change of servicers when they occur.
Did you find this list helpful? Interest rates are not the only important factor when it comes to getting a mortgage. If you have any questions, please do not hesitate to contact a member of the Housing Buzz team.