Have you reached that point where you’re ready to purchase a home? Congrats, that’s exciting! And life-changing and intimidating and a lot on your plate! At Kasasa, we get it — homeownership is both wonderful and overwhelming all at once. Maybe the hardest part is understanding your home loan options and finding the best one to fit your needs. If you’re ready to learn how to compare your home loan options, check out our quick breakdown of how you should evaluate a mortgage.
Know your loan types.
There are many different types of home loans available, including:
Conventional (fixed rate) mortgage
FHA (Federal House Administration) mortgage
VA (Veteran Affairs) mortgage
Each of these loans has different qualification requirements, so it’s important to understand which ones you can consider for your home loan.
Look at the current interest rates.
Mortgage interest rates can fluctuate from week to week, or even day to day, so ask the lender or broker where your quoted rate sits on the scale.
Additionally, a fixed-rate mortgage won’t change your interest rate, but an adjustable mortgage can rise over time. Take that into account when you're comparing rates as an adjustable mortgage will change your loan payments every year.
Get multiple offers (don’t just take the first).
Just like there are many varieties of home loans, there are also multiple options for a mortgage lender. You can head to your local banking institution, visit a credit union, check out any of the online mortgage lenders, or meet with a mortgage broker near you. There are over 9,400 federally registered mortgage loan companies in the U.S., so options are almost endless for where you can go.
You can request loan estimates from more than one lender. That way you make a more informed, detailed comparison between offers. There’s no magic number of how many offers you should get — you just want you give yourself a variety of options to decide what makes sense for you and find the best deal.
Compare your loan costs.
When you get your home loan estimate, you’ll look at four numbers (you can find them in the comparisons section):
Total cost of the mortgage (interest, principal, and mortgage insurance) for the first five years of the loan.
How much principal is paid off in five years.
The annual percentage rate of the loan.
The percent paid in interest of the entire life of the loan (different from the loan interest rate).
In addition to comparing these numbers across each loan quote, take a look at the estimated closing costs to see what you would be paying to finalize the purchase of your home.
Check your loan terms.
The term of a home loan can also be listed as the “life” of the loan, meaning the estimated time it will take you to pay your mortgage off, which is usually 15 or 30 years. However, there are other terms, or specifications, of a loan that you should take the time to compare. These include the rate lock period, mortgage insurance, adjustments (if any), and if there are any prepayment penalties for paying off the loan early.
TIP: Just because a mortgage is a 30-year mortgage doesn’t mean you’re locked into making payments for the next 30 years. You can always pay ahead on your mortgage to shorten your loan terms. This way, you’ll save on interest payments over the life of the loan and build your home equity faster! (If you have reservations about paying ahead in case you need that money later on, read on...)
Buying a home is likely the biggest purchases you’ll ever make. So it’s critical to bring down any costs where you can. Ask if your lender or broker can reduce your interest rate or points to match current rates if they have decreased since your initial quote. You could also ask about lender fees, title insurance, or escrow changes, all of which you potentially get reduced. Some items, like taxes, recording fees, or the charge for pulling your credit, aren’t up for negotiation as lenders don’t have control over those prices.
What if your financial situation changes before those terms are up?
Life is unpredictable. It’s what makes a mortgage loan such a huge decision. That’s why we’ve introduced a new type of mortgage, exclusively available at local community banks at credit unions. The Kasasa Mortgage™ is a fixed-rate mortgage, with more built-in control. Your personal Kasasa Mortgage dashboard shows you exactly where you stand and even lets you see the impact of any changes to your payment amount, frequency, and more — all BEFORE you make any decisions.
Plus, at select banks and credit unions, your Kasasa Mortgage also gives you a Take-Back™, with zero penalty fees. So you can pay ahead to save on interest, but still withdraw that money if life happens.
That’s it. You’re ready. It’s time to start life in your new home. Just make sure your home loan is one you want to live in, too.