If this is your first go-round on the home buyer's carousel, you might be in for a bit of a shock. Buying a home can be downright confusing. It can also be stressful, especially if you don't fully understand the process. One of the most confusing and stressful aspects of the home buying process is figuring out how to get the best deal on a mortgage. Make mistakes and you could find yourself locked into a loan with a less-than-favorable interest rate. Before you head out to shop for a mortgage, take the time to understand the questions you should be asking. Here are three of the questions you'll need to ask to help you get the best rate on your mortgage.
Fixed-Rate or Adjustable-Rate Mortgage?
When you start shopping for a home loan, one of the first things you need to understand is the difference between a fixed-rate and an adjustable-rate mortgage. A fixed-rate mortgage is going to lock you into an interest rate for the life of the loan. An adjustable-rate loan is going to fluctuate through the life of the loan.
With an adjustable-rate loan, you'll start out with a low-interest rate for a predetermined amount of time. Once the introductory period is over, interest rates will be re-evaluated. Depending on the current market, your interest rate could do one of three things—stay the same, increase or decrease. If you choose to go with an adjustable-rate mortgage, be sure you can comfortably afford your mortgage payment if it increases after the introductory period.
What Are Points?
Points are the upfront fees you can pay to lower your interest rate. Paying for a point will lower your interest rate by one point. One of the benefits of paying for points is that you can pay a lump sum payment up front to reduce the cost of your monthly payments. However, if you don't want to come up with additional upfront fees to get into your new home, you can forgo the points and keep the interest rate where it is.
Do I Need a Down Payment?
If you want to ensure a low-interest rate on your mortgage, you should consider coming up with a substantial down payment, especially if you don't have stellar credit. If you have a credit score that's lower than 580, and you want a low-interest rate, you should plan on coming up with at least a 10% down payment.
Now that you're in the market to buy your first home, make sure you understand the process. For more information on home mortgages, talk to a lender in your area.
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