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How to find the right mortgage—a different kind of home shopping
Ready to take that big step toward buying a home? It’s time to make your shopping list now—mortgage shopping, that is. Read on and find out how you cross off all the most important items without breaking a sweat.
Let’s talk about lenders
First things first: you'll need someone to loan you the money (which you’ll pay back with interest, of course) to cover the cost of your new home. That's where lenders come into play, and there are two main choices to consider right off the bat.
- Direct lender: Think banks and credit unions. Going straight to the source can speed up the loan process, but you’re limited in knowing what other lenders have to offer. You can go to multiple lenders to compare offerings.
- Mortgage broker: A middle person who gathers your personal and financial info and shops around for lenders that best meet your needs. Brokers are a good option if you want to explore a variety of loans without having to look around on your own. And yes, there may be brokerage fees to consider if you take this path.
Jonathan Giles, Head of Consumer Direct Lending at TD, suggests reaching out to multiple resources. “Talk to two or three lenders to find someone who can help provide the best guidance and expertise.”
And Scott Lindner, National Sales Director for TD Mortgage, reminds homebuyers to think about fees when starting the mortgage process. “Most lenders will ask for some upfront funds to cover the expense of the appraisal.”
Choosing the right mortgage
Choices, choices, choices. Lots of mortgages are out there, but most homebuyers opt for one of the following.
- Non-conventional loan: Built for many types of borrowers including first-time buyers, these loans, such as FHA, are easier to qualify for as they have lower down payment and credit score requirements.
- Conventional loan: A solid option if you have good credit and can swing a higher down payment, conventional loans may come in terms of 10, 15, 20 or 30 years. “Thirty-year loans are the most typical,” says Giles, “because they allow for the lowest monthly payment.”
Once you’ve decided on the right loan option for you, Lindner suggests you “call up your chosen lender to get the loan process going, so you can begin taking the steps needed to secure a timely closing.”
The ins and outs of interest rates
While there are several mortgage options available, there are two important ones to note.
- Fixed-rate mortgage: Interest rates are locked in. Your principal and interest payment will stay the same each month and depend on your sale price and down payment.
- Adjustable-rate mortgage (ARM): Principal and interest payments may fluctuate and are typically lower than fixed-rate options at the start of the loan.
Plan on starting a garden, settling in and staying in your home for a while? A fixed-rate mortgage is a good option for you. And some fixed-rate mortgages allow you to pay “points” up front, which can also be helpful long-term. Points are fees you can opt to give to your lender at closing in order to lower your monthly rate and payments. “Paying some upfront fees for a lower interest rate makes sense since you’ll have time to recoup the cost,” says Giles.
Eventually see yourself moving to a tropical location or traveling around in an RV? No problem. Lindner says “an ARM with a lower rate makes more sense” if you plan on selling your house in a few years. But no matter which option you lean toward, it’s important to consult with a pro. “Make sure you have someone to walk you through how rates work,” says Lindner.
Putting down initial payments
It’s the age-old question: when saving for a house, how much should you come up with for a down payment? Giles says it depends. “While you might think the general rule of thumb is to put down 20%, there are a lot of other options. Make sure you understand what you’re comfortable paying. You don’t have to go straight to a 30-year fixed rate with 20% down just because it’s common.”
Shopping for a mortgage ultimately comes back to research. As Lindner advises, “You should educate yourself and make sure you’re getting the appropriate mortgage for your particular needs and circumstances.” You can do this by talking to others who have been through the process and visiting some reputable online resources. Doing your homework can help you ask lenders/brokers the right questions, making it easier to find the mortgage that best suits you. Happy shopping!
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This article is based on information available in February 2022. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.