Best Mortgage Loan Interest Rates

While several loan providers in the market offer mortgages at competitive rates, we will look at those lenders that are the best in their category. Let's start!

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FAQ's About Mortgage Loans

Before taking a mortgage loan be sure you familiarize yourself with all the terms and conditions associated with the loan. To help you get started, we’ve compiled some of the most frequently asked questions about mortgage loans below.

How Does the Mortgage Loan Process Work?

Whether you are buying a home or refinancing one, the mortgage process is basically similar to one another. Here is an introductory look at what happens when you’re mortgaging/refinancing a home:

  • Turn In Mortgage Application – The majority of home lenders provide an online application process. Fill it out, submit the form along with pertinent documentation.
  • Wait To Receive Loan Estimate – A lender is required to give you an estimate within three business days of a submitted application. The document needs to entail three things – monthly mortgage rate, estimated interest rate and closing costs.
  • Set Up A Home Inspection – Be sure to communicate with the seller about dates and times for a home inspection. An inspection will help uncover potential problems.
  • Get A Home Appraisal – Ask your lender to provide you with an appraiser to determine the home’s value. You will need to pay for this appraisal.
  • Buy Homeowners Insurance – This is a necessity before a bank approves a loan.
  • Wait Until Underwriting Is Completed – You’ll need to wait for the bank to prepare the loan documents, and it can take some time.
  • Begin Underwriting Process – Underwriters, using manual or automated systems, can take days or weeks to approve or decline loans.
  • Review Closing Disclosure Documents – Within three business days, the loan documents will arrive. Be sure to review the mortgage documents before signing. You want to compare the disclosure to the lender’s recent loan estimate to ensure no significant changes.
  • Close On The Loan – At this point, all parties involved in the mortgage transaction will need to sign the pertinent documents. Afterward, you pay the closing costs and down payment.
Understanding The Mortgage Interest and How It’s Calculated

The mortgage interest rate is the yearly cost of financing your home, noted in a percentage of the loan amount. For example, a 2.75% interest rate on your mortgage means an additional 2.75% on the remaining balance is added.

There are two types of interest rates: fixed and adjustable.

Fixed-Rate

With a fixed-rate mortgage, the interest rate stays the same throughout the life of the loan. This means the monthly mortgage payment also remains the same. You don’t have to worry about increasing costs, but you don’t benefit unless you choose to refinance if the market drops.

Fixed-rate mortgages tend to have a higher initial monthly payment because the lender is unable to raise the interest rate when the market dictates it.

Adjustable-Rate

If you have an adjustable-rate mortgage, the interest rate is tied to the market rates. It’s subjected to the market’s movements, using a benchmark rate (i.e., prime rate). When the benchmark rate increases, your monthly mortgage payment will increase. When it falls, your mortgage payment will also decline.

This kind of rate is only ideal when you’re going to sell or refinance your home before an increase in rates or if you believe there were be a decline in the market.

How do you know which one is best for you? It will depend on three things:

  • Market conditions
  • Your individual finances
  • How long you intend to maintain the mortgage

When it comes to determining your mortgage interest rate, there are several factors that lenders will consider of you, the home, the loan, and current economic conditions. Such factors are:

  • Property type and use
  • Your credit history
  • Home price
  • Down payment
  • Loan term
  • Market rates
  • Interest rate type

When looking at the different offers, it’s important to consider the annual percentage rate (APR) and interest rate percentage. The interest rate calculates how much you’re borrowing every year. The APR denotes the interest rate as well as the origination fees, discount points and closing costs

8 Steps To Applying For A Home Mortgage

Be sure to begin the mortgage pre-approval process before you look at homes. This is important for three reasons:

  • You’ll know how much you are approved for and can look for homes in that price range.
  • Many sellers required buyers to be pre-approved.
  • Pre-approval means you can submit an offer as soon you find the home you want to buy.

From that point, here is what you’ll need to do:

  • Analyze Your Credit History – Look at your credit report and its history before applying for a mortgage. If there are any mistakes (that affect the score), address them immediately with all three credit bureaus – TransUnion, Experian and Equifax. If your score is low, make sure to improve them first.
  • Prepare Documents – The bank will request pay stubs, bank account statements, and tax returns to be submitted with the loan application.
  • Compare Shop With Different Lenders – If you comparison shop in a 45-day window, your credit score will suffer only slightly.
  • Review Offers – Any lender you applied with will give you a loan estimate that includes monthly payment, interest rate, closing costs and other important information.
  • Pick Your Lender – Once you’ve reviewed each loan term, pick the lender best for you.
  • Ensure Quick Responses To Any Requests Made – When your loan goes through the processing and underwriting, the lender may request something. Be sure to respond as quickly as you can to move this process along faster.
  • Review Closing Disclosure – The lender is required to give you a closing disclosure, showing you the final mortgage costs, the interest rate, fees, etc., within three business days of the closing date scheduled. Look at the closing disclosure and the loan estimate they initially provided to determine if and why fees changed.
  • Close On The Home – At the closing, you’ll sign a plethora of documents to ensure the home reverts to your possessions. You will also be required to pay the down payment and up to 5% closing costs.
How To Find The Best Possible Mortgage Lender

When looking at each mortgage company, there are four factors to consider:

  • Interest Rate – Interest will vary by product and lender; make sure you’re comparison shopping to find the best possible deal
  • Closing Costs – Closing costs will include the application, loan origination and appraisal fees, so even though a lender offers a low rate compared to others, the mortgage costs may not make it the best. Use the APR to compare the lenders’ offers.
  • Product Offerings – Look for a state-licensed lender that offers great options for you – be it a VA loan, 30-year-fixed rate loan, etc.
  • Customer Service Reviews – Read reviews and feedback to learn more about the lender. You want lenders who treat their customers with respect as well as offer a good loan rate
What Kind Of Mortgage Will Suit You?

Your individual situation – plans, preferences and finances – will dictate what the best mortgage is. The most common kind of mortgages are:

Adjustable-Rate Mortgages

Monthly payments and interest rates are affected by the market, which means you could pay more or less during the life of the loan. Early adjustable-rate mortgages are low, but rates can spike unexpectedly (leaving some borrowers unable to pay).

Balloon Mortgages

These are loans with short-term interest payments of five to 10 years, which then require the homeowner to make a lump sum payment. This may be ideal for individuals who are going to sell or refinance the home before the impending balloon payment is due.

Conforming Loans

The loans are subjected to the limits and guidelines as laid out by Fannie Mae and Freddie Mac.

Conventional Mortgages

These mortgages originate from private lenders and are not federally backed by the government. To qualify, private lenders want a minimum 620 credit score, a low debt-to-income ratio and a minimum 3% down payment. Any down payment less than 20% must include private mortgage insurance.

Fixed-Rate Mortgages

Loans with a fixed rate mean payments and interest rate remain the same (great for budgeters). However, if the rate falls, you will need to refinance if you want to benefit financially.

Government-Backed Loans

These are loans from the Department of Agriculture, Department of Veterans Affairs and Federal Housing Administration. If you are unable to get a convention loan, you could attain a government-backed loan.

  • FHA – The majority of FHA-backed lenders want a minimum of 580 in credit score and a 3.5% down payment. However, you could be approved if you agree to pay a 10% down payment even if your credit score is 500 to 579.
  • VA – The VA has no requirements about down payments or credit score minimums, but a lender will do an in-depth analysis of your financial profile. A lender will need to see the Certificate of Eligibility (COE) that shows you are eligible for a VA loan.
  • USDA – The majority of lenders who do USDA loans do not require money down but a minimum of 640 credit score. A home must be located in a permissible rural area, and you have to meet specific income requirements.

Nonconforming Loans

These are jumbo or government-backed loans that don’t meet the criteria set forth by Fannie Mae or Freddie Mac. Jumbo loans surpass the limits of a conforming loan and have stringent qualifications for eligibility due to lenders’ risk.

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