Next to finding the right home, finding the right home loan is the most important decision you’ll make in the home buying process. To make sure you’re getting the best deal, talk with multiple lenders and compare mortgage rates and their loan options. Here are some guidelines on how to find the best loan.
Find a Lender
There are many ways to choose a reputable lender. You can ask for a recommendation from your family, friends or real estate agent. Or you can visit your local bank branch, credit union, savings institution or mortgage company.
Here are some questions to ask as you compare your lending options:
- Do you currently have a relationship with the lender? If so, are you happy with them?
- What level of service does the lender provide?
- How easy will it be to access your accounts, pay your bills and get help?
- Does the lender offer a variety of loan options?
- Which loan program is the best for your needs?
- How much does the lender charge in origination fees?
Contact several lenders before making a decision. That way, you can make sure you’ve done your due diligence and are getting the best loan.
How to Compare Rates
Using the APR is the best way to compare lenders. The government requires all lenders to disclose the APR, because it shows you the total cost of a loan. It tells you the interest rate your bank will charge for your loan, but also factors in any additional costs that you’ll need to pay to get that rate—like discount points or lender origination fees.
How Discount Points Can Help You Reduce Your Rate
You can reduce your interest rate when you “pay points” to lower your monthly payment.
One point costs 1% of your loan amount. Paying it can reduce your interest rate by about 0.25%.
For example:
- If your loan amount is $100,000, one point would cost $1,000 upfront.
- If you were quoted an interest rate of 4.00%, paying one point would reduce your interest rate to about 3.75%.
Paying discount points doesn’t reduce the amount borrowed—it simply lowers your interest rate and monthly payment.
When Should You Consider Paying Points?
The longer you plan to stay in your home, the better it is to pay points.
If you plan to move or refinance within the next two to four years, paying points may not make sense.
You can use our points calculator to estimate your “break-even” timeframe—the point when you’ll start to realize a genuine cost savings from your discount points.