Comparison shopping for a mortgage? Here are key questions you should ask lenders to get the best rate and find the right mortgage to fit your needs, via NerdWallet.com
1. Should I get a fixed- or adjustable-rate mortgage?
Mortgages generally come in two forms: fixed or adjustable rate. Fixed-rate mortgages lock you into a consistent interest rate that you’ll pay over the life of the loan. The part of your mortgage payment that goes toward principal plus interest remains constant throughout the loan term, though insurance, property taxes and other costs may fluctuate.
The interest rate on an adjustable-rate mortgage fluctuates over the life of the loan. An ARM usually begins with an introductory period of 10, seven, five or even one year, during which your interest rate holds steady. After that, your rate changes based on an interest rate index chosen by the bank.
ARMs look good to a lot of homebuyers because they usually offer lower introductory rates. But remember, your rate could go up after your introductory period, so be sure you’re comfortable with the chance your monthly mortgage payment could rise substantially in the future. As you try to figure out how to get the best mortgage rate, use the terms of the loan to calculate what your payment might look like in different rate scenarios.
2. How much should I expect to pay in closing costs?
Closing costs usually amount to about 3% of the purchase price of your home and are paid at the time you close, or finalize, the purchase of a house. Closing costs are made up of a variety of fees charged by lenders, including underwriting and processing charges, title insurance fees and appraisal costs, among others.
You’re allowed to shop around for lower fees in some cases, and the Loan Estimate form will tell you which ones those are. Shopping for the right lender is a good way to find the best mortgage rate, and save money on a mortgage and associated fees.
3. Do I qualify for any special programs?
Before you settle on a mortgage, find out if you’re eligible for any special programs that make home-buying less costly. For example:
- VA loans: If you or your spouse are active military or veterans, you might qualify for a VA loan. Such loans allow low (or no) down payments and offer protections if you fall behind on your mortgage.
- FHA loans: Like VA loans, an FHA loan allows low down payments, but they’re open to most U.S. residents. They’re popular with first-time homebuyers, because they require as little as 3.5% down and are more forgiving of low credit scores than traditional lenders.
- USDA loans: If you live in a rural area, the USDA might give you a low- or no-down-payment mortgage and help cover closing costs. Like VA loans, USDA loans can also offer help if you fall behind on your payments.
- First-time homebuyer programs: If this is your first go-round in the homeownership process, check out the HUD website for helpful information and a list of homebuyer assistance programs in your state.
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