If you're about to purchase a home, you might already be aware that this will be one of the biggest decisions that you will ever make. Typically, you would expect to be dealing with payments for your home for 15 to 20 years of your life. With that being said, it's very important that you know how to choose the best lending institution to get into such a long-term relationship with. Here are some of the ways that you could choose a lending institution for a home mortgage:
- Look for a list of certified lenders in your area. Your first step should be to come up with listings of reputable, government-accredited lenders near your area. Contact the Federal Housing Administration and request for their available listings. Then, double-check with the Better Business Bureau to see if these institutions have any pending complaints, and so you can find out about their general reputability among consumers.
- Obtain your credit score. Make sure that you obtain the reports of all three of the major credit bureaus - Equifax, Experian and Transunion. This is because you never know from which credit bureau the lending institution will obtain your credit report. Knowing your credit score will help you be aware of the possible interest rates on home mortgages that you are eligible for, and will also help you do measures to possibly improve your credit score before you apply for a home loan.
- Consider hiring a mortgage broker. A mortgage broker, with her extensive experience in home mortgages and her contacts in the industry, will be able to help you find the best lending institution for your particular situation. Do be careful to choose a mortgage broker who works independently and isn't contracted by lending institutions; otherwise she might have conflicting interests. When hiring a mortgage broker, inquire about how she will receive her compensation (for example, upon closing of the deal or through an add-on to the mortgage interest rate, among others). It's best that you hire more than one mortgage broker, and be prepared to negotiate with them, as you will with a lending institution.
- Know the factors to look out for. It's important that you compare different lending institutions according to key factors:
- The interest rates. Apart from looking for the lowest interest rates, you should also find out if they are offering fixed (permanent) or adjustable (can go higher or lower) rates. If you are offered an adjustable interest rate, ask how your loan payment will be lessened when the rates go lower.
- The down payment. Though the typical down payment for home mortgages is at 20% of the purchase price, you might be able to find lending institutions that offer as little as 5%. For significantly lower down payments, you might be required to pay a private mortgage insurance (PMI). Factor in this cost when comparing for best rates.
- Other fees. There are other fees that you will have to deal with, such as underwriting fees, broker's fees, transaction, settlement and closing costs, among others. Know that most of these fees are negotiable, and ask about any fee that isn't totally clear with you. Again, make sure that you factor in these fees with your total monthly payments.
Remember, the most important thing to do is to compare between different reputable lending institutions so you could find the best deal out there. Good luck, and hope this helped!