New borrowers tend to fixate on the home’s purchase price, followed by the interest rate. But factors like closing costs, the loan’s total price, whether the loan is fixed or variable, and whether the borrower is required to get private mortgage insurance can dramatically alter what borrowers end up paying.
What options are open to you? How do you know how much you can borrow? How important is your credit score? What kind of mortgage do you want? We have some answers.
It is a good idea to shop around for mortgages in order to get better rates. Sometimes large banks and lenders don’t offer the best rates that can be had. Additionally, some lenders add in fees. While the final fees do show up at the end, many borrowers don’t understand the fees and accept them as the cost of getting the loan, even though they could’ve avoided those fees by shopping around.
A small difference in the interest rate can make a big impact on cost. On a $200,000 fixed-rate, 30-year mortgage, an interest rate of 4.5% costs $59 a month more than a 4% rate. That adds up to $3,512 in the first 5 years.
Is an FHA mortgage for you?
An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. Because of that insurance, lenders can – and do – offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements. There are pros and cons to this sort of loan.
You may qualify with low credit scores. If you have a low credit score, this may make you ineligible for a traditional loan. Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5 percent, the borrower needs a credit score of 580 or higher. Those with credit scores between 500 and 579 must make down payments of at least 10 percent.
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