You have enough on your shoulders – buying a home should not be a stressful and confusing topic!
Don’t worry – we are here for you! We’re here to arm you with the info you need to feel confident about how mortgage rates work, what the process looks like, and what to consider when selecting a mortgage lender.
First, let’s be real about the landscape here. There is a challenge with affordability – especially when it comes to the locations where you want to live (not just work). Home prices have steadily risen and you might feel like you missed out on the home buying boom of 2020 and 2021.
While buying a home may not be for everyone, for those who still want to pursue it – the good news is there are great options available and we’re going to give you the lowdown on how to tackle it.
FIRST – Let’s talk about rates. What they are, how they affect your mortgage, and what to consider.
SECOND – Let’s talk about how mortgages are NOT JUST about rates! There is so much more to look at when buying a home and selecting the lender who will help you finance it.
THIRD – Let’s review the process so you know what you’re getting into. A mortgage is a pretty big deal, and as GI Joe used to say, “Knowing is half the battle!”.
Rates, rates, rates…
A mortgage rate is the interest rate you pay on your home loan. It is a percentage of the amount you borrow, and it determines how much you will have to pay each month on your mortgage.
The mortgage rate is determined by several factors, including the economy, supply and demand, and the Federal Reserve. When the economy is strong and people are confident, there is more demand for loans, which can drive up interest rates. The Federal Reserve also sets interest rates, and they can change the rates to influence the economy.
Lenders also take into account your credit score and the type of mortgage you are getting when determining your mortgage rate. If you have a good credit score, you are seen as less of a risk to the lender, and they may offer you a lower interest rate. If you are getting a fixed-rate mortgage, the rate will stay the same for the life of the loan, while with an adjustable-rate mortgage, the rate can change over time.
Long/Short – yep, you want a good rate as it will typically lead to a lower monthly payment and ideally mean you are putting more of your money toward building equity and paying off your loan!
It’s not all about the rate, though…
We realize we just said you wanted a good rate – and you do, but that isn’t the only consideration when purchasing a home.
If you ONLY focus getting the best mortgage rate, however…you might overlook other factors that can significantly impact the cost and terms of your mortgage, the experience you have getting one, and deal with post-close frustration and buyer’s remorse.
Let’s avoid that, shall we? Here’s a quick checklist to use when you are looking to select a lender:
- DO THEY GET GOOD REVIEWS? While we all know reviews can give a skewed impression – they are still a very tangible data point when researching the company and person who will help you finance your home purchase. Google, Facebook, and industry specific platforms like Experience.com will give you a pretty good idea of who you are dealing with and what to expect.
- DO THEY ANSWER QUESTIONS AND EXPLAIN THINGS WELL: Are they explaining the program options, loan terms, fees, and costs to me clearly? A good lender will explain things like pre-payment penalties, escrows (homeowner’s insurance, property taxes, flood insurance, mortgage insurance, etc), how much of a down payment you really need to put down, benefits of the different programs available, and what you should expect to pay out of pocket. There’s a HOST of things you should know when walking into a mortgage – do not be afraid to ask what something is!
- DO THEY CLOSE ON TIME? As a prospective home buyer – you’d assume the answer to this is yes. Unfortunately, and as your friends and relatives who have bought a home will attest, it isn’t always the case. If your lender drops the ball, and you miss your closing date – you will not only miss out on the house you want, but you could lose the money you already put down on the house, option fees, appraisal fees, etc. It’s costly. Make sure you pick a lender who has an established reputation for closing ON TIME, EVERY TIME, ALL THE TIME. (hint hint, we do.)
What does the process look like?
Frankly, a loan is a loan is a loan. A standard, application to close process looks like this:
- You submit an application. This includes details like your credit, income, assets, and your employment.
- You provide supporting documentation. Bank statements, paystubs, tax documents, etc.
- The lender gets you to sign some disclosures. You will get a Loan Estimate that outlines loan fees, escrows, and an estimate of how much you will need to bring to closing (among other upfront, required disclosure documents).
- The home is appraised to confirm the value.
- Your loan is processed and underwritten (you might get requests for additional documents based on what was provided previously).
- If everything looks good, your loan is “cleared to close”.
- The closing is scheduled, and documents are sent to a settlement agent for you to sign. (Or, in today’s world – you can sign 95% of your documents digitally – ask us about that!)
- Money is sent, signed docs reviewed… and if everything lines up… you get the keys!
Obviously EVERY situation is different, but for the most part – that’s what you can expect. It’s not so scary when you peel away the fogginess, is it?
In short – rates are important, but not everything. Work with a lender who will explain things, answer questions, and has a demonstrated track record to making the experience GREAT. Knowing what to expect in the process makes a HUGE difference and will reduce your stress, lead to better questions, and help you be greater prepared for this exciting journey you are about to take!
We’ve got awesome loan officers ready to help… here are some resources to check out: