Home loans aren’t one-size-fits-all financial products. Each loan program comes with different pros and cons, and the exact details of offerings can differ from lender to lender. With so many possibilities, choosing the ideal loan for your circumstances can be challenging. However, it can also save you thousands of dollars, so it’s worth taking the time to make an informed decision. How do you determine which loan program best suits your situation? Understanding how to compare home loans will undoubtedly help.
How to Compare Home Loans
Like many industries, the mortgage business has a vocabulary that’s all its own. In order to navigate it effectively, it helps if you have a basic understanding of the common terminology. You can educate yourself by reading up on the topic online or consulting a reputable mortgage lender. Homebuyer education classes offer another great way to learn more. As HSH explains, you’ll have numerous options and formats to choose from; thousands of organizations across the country offer these classes. As an added bonus, taking an approved class might help you qualify for some of your state’s homebuying assistance programs. Once you have a solid grasp of home loan basics, it’s time to use that knowledge to weigh your options and compare home loans.
Consider Loan Options
When it comes to evaluating home loans, where do you start? According to Credit Karma, the major considerations for potential borrowers tend to revolve around three features:
- Loan Type: There are three main types of loans: conventional loans, government-backed loans, and special loans. Conventional loans are offered by private lenders. Government-backed loans are largely made by private lenders, but they are accompanied by a government guarantee that makes it possible for the lenders to offer loans with smaller down payments and relaxed credit requirements. These include FHA loans backed by the Federal Housing Administration, VA loans backed by the U.S. Department of Veterans Affairs, and USDA Rural Development loans backed by the U.S. Department of Agriculture. The final category, special loans, includes all of the loans that don’t fit in the other categories.
- Loan Term: The loan term is the length of time a borrower has to pay off the loan. A shorter term means that you’ll pay more each month. A longer term means that you’ll pay more interest over the life of the loan. The majority of borrowers opt for terms of either 15 or 30 years, but other terms are available.
- Loan Interest Rate Type: There are two loan interest rate types: adjustable-rate and fixed-rate. Adjustable-rate loans come with interest rates that shift with the market. While they often start with a lower interest rate, they’re unpredictable going forward; if interest rates soar, so will your mortgage payment. In contrast, fixed-rate loans, which are the choice of about 75 percent of borrowers, keep the same interest rate throughout the life of the loan.
Compare Specific Costs Using Loan Estimates
Once you have an idea of the type of loan that appeals to you, you can request quotes from lenders. As The Mortgage Reports explains, these loan estimates allow you to quickly compare vital numbers, including the loan amount, estimated monthly payment, interest rate, and loan term. Plus, they provide insight into the loan’s terms, including whether or not it comes with prepayment penalties. You’ll also see estimates for closing costs and various fees, which might include points. Be sure to look beyond the interest rate. While a low interest rate is a great way to keep the cost of borrowing low, the amount that you’ll need to bring to the table for closing costs and any terms that might cause headaches in the future should also be carefully considered before you settle on a loan.
If you’re wondering how to compare home loans, reach out to the friendly loan professionals at PrimeLending of Denver. Our goal is to match our clients with the right loan product. To do that, we start by listening to what you have to say about your situation and your housing goals. Then, we work with you to explore the possibilities and find the loan product that best suits your financial needs. Our expert team is always ready to offer helpful advice as you navigate the home loan process. Contact us today to see how we can help you make your dreams of homeownership a reality.