When you’re shopping for a new home, it’s important to shop around for your financing. Of course you want to get the most value for your money when purchasing a home, but you should also pay close attention to what types of home loans are out there.
Here are a few things you should consider.
- Definitely shop around for your home financing. As the interest rate and terms of your mortgage can have major impacts on what you’ll be able to buy, you want to have the best possible deal for the long-term. Don’t just settle on a single lender.
- The percentage rate on a home loan matters. Even just 0.5% can make a big difference. For example, a 30 year loan of $200,000 at a 5% fixed-rate, will cost you about $22,000 more in interest than if the interest rate was instead set at 4.5%. Even a quarter of a percentage point can make a difference.
- Be aware of fixed vs variable interest rates. While variable rates can often be lower, be sure that there is a reasonable ceiling on the variability of your rate. Typically, fixed rates are much better due to the long-term planning ability they allow.
- Closing costs are an important expense to keep in mind. Mortgage companies will charge additional fees which include appraisals, origination fees, and title charges. Even credit checks may be charged to you, as well.
- Simply being pre-qualified for a loan doesn’t mean you should spend the absolute maximum allowed by your financing. A good rule of thumb is that your mortgage – which includes principal and interest – plus property taxes and homeowners’ insurance shouldn’t be more than 30 percent of your gross monthly income.
By considering these five items, you’ll be able to shop smarter for home loans and be aware that the smallest details can save you thousands, if not tens of thousands of dollars in the long run.
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