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Buying a home is one of the biggest financial commitments you’ll ever make. It can make anyone a bit nervous—especially since the past two years have been a real roller-coaster ride—so here are some things to keep in mind while applying for a mortgage.
Look for a mortgage broker with the skills and resources to do a lot more than pre-qualify you for a mortgage loan. They should take the time to discuss your overall financial goals with you before presenting your loan options. At New Way Mortgage, the broker of your dreams will also review your credit score, help you correct any errors on your credit report, offer you a competitive mortgage rate, and close your home loan without excessive fees.
Here are four secrets to remember when shopping for a mortgage in California.
Secret #1: Shop Around for Mortgage Rates … It Can Pay Off Big
Many homebuyers make the mistake of going with the first mortgage broker who quotes them what sounds like a reasonable interest rate. But borrowers who shop around often save money over the term of their home loan, closing costs and fees, according to a Freddie Mac survey.
Think about it: You comparison-shop for other stuff, even groceries. You do this to get the best price and save money. It works just as well for mortgages, with much bigger potential savings.
Getting more than one quote also gives you a preview of a potential lender’s integrity. For example, if a lender is charging you a fee to get pre-qualified, or charges twice what other mortgage brokers charge for locking your interest rate, keep looking.
Wondering whom to approach for quotes? Asking friends or family for referrals is one approach. If you’re working with a real estate agent, ask for a lender recommendation. Watch this quick video from the experts at New Way Mortgage as they share a few tips on how to shop for a mortgage, and how this may give you a big return.
Secret #2: You’ll Get More from a Broker Than from Your Bank
Choosing an independent mortgage broker to help you buy your dream home opens up more opportunities to save money. This is because a broker does the shopping for you, approaching several wholesale lenders. If you think of it in terms of ice cream, big banks are limited to two or three flavors of loans, while mortgage brokers are the Baskin-Robbins of home financing.
Secret #3: Don’t Get Just Any Mortgage Loan … Get the Right Loan
No matter how hot the market may be, take your time to explore your loan options and compare interest rates. This will enable you to buy your perfect house while having manageable monthly payments.
While you may qualify for several loan options, they probably won’t offer the same savings. Here are three examples:
- You may assume you’ll need a jumbo mortgage for homes with a purchase price that’s near the current $598,000 conforming limit.* However, a smart mortgage broker can arrange two separate mortgage loans instead of a single jumbo. You won’t have to pay a higher jumbo rate if you go for this. Also, if you sell an investment property and come into a big chunk of change, you can pay down your mortgage with these funds. This is called a recast, and it’s available only for conforming loans.
- If you want to refinance your FHA loan, some lenders may assume you want the FHA Streamline. It will lower your rate and may not require a new appraisal. Sounds good, right? But hang on … refinancing your FHA loan by replacing it with a conforming loan could be a better choice. Not only do you get a lower rate and monthly payment, but you also may be able to eliminate monthly mortgage insurance premiums by refinancing.
- Let’s say you’ve found the perfect house and it’s within your budget, but you anticipate moving again within five years. This is when an adjustable-rate mortgage, or ARM, could be your best option. A 5/1 ARM may offer you an intro rate that’s slightly lower than a fixed-rate mortgage, and it won’t adjust for five years.
Secret #4: APR Can Be Confusing, but It Can Also Be Your Friend
The phrase “APR” was first coined by some folks in the government. Like other government inventions, it can be useful once you figure it out.
Here’s what it means: An APR represents the true cost of your mortgage by including the interest rate and some other fees and closing costs. For example, if you have to pay an origination fee or points, their cost would be included in the APR. Watch the video below from our mortgage experts to gain a better understanding of APRs.
During the pre-qualification process, be sure to ask about the APR, not just the interest rate. This is because two lenders may offer exactly the same interest rate, but unless their fees are identical, the lender with the lower fees will have the lower APR.
There’s one possible exception, and that’s where escrows are concerned. No mortgage broker can give you the exact number for this until closing. This is why we go for the “worst-case scenario” and estimate your escrow as higher than we think you’ll actually end up with.
If you keep these four secrets in mind, buying a house will be much less stressful … and when you check in with the crew at New Way Mortgage for a quote, you’ll be working with the Baskin-Robbins of mortgage lending.
* This is the 2021 conforming limit for Sacramento County. Other California counties may have different limits—ask us for details.