When it comes to finding the perfect home, it’s important to put in the legwork and shop around until you find a house that meets your needs. Researching loan options is usually a lot less fun than hitting up an open house or two — and that could make comparison-shopping fall off your radar. Sound familiar? You’re not alone — 47% of homebuyers don’t compare lenders when shopping for a home, according to the Consumer Financial Protection Bureau (CFPB). And 77% of borrowers end up applying for a loan with only a single lender or broker.
But you should shop around for your home loan: The type of loan you choose can affect everything from the price range you can afford to the down payment you’ll need to the long-term cost of your loan, including interest. According to CFPB research, a borrower taking out a 30-year fixed-rate conventional loan could get rates that vary by more than half a percent. Having an interest rate of 4.0% instead of 4.5% can equate to about $60 savings per month, saving you $3,600 over the first five years. Plus, a lower interest rate allows you to pay off your principal quicker, an additional $1,400 in the first five years.
You can do initial research on mortgage payments and interest rates with Trulia’s mortgage calculator. After that, the best way to research types of home loans is to schedule an appointment with a mortgage professional. They can offer a real-time review of your credit history to help you understand how much you can afford to spend on a house and which types of loans will fit your needs. Schedule this meeting before you start seriously looking at potential houses, so you can go into your search with a more realistic idea of what to look for pricewise.
Before you meet with a mortgage professional, get up to speed on home loan lingo and the types of loans out there. The main three loan categories are conventional loans, FHA loans, and special-programs loans.
Once you understand which types of loans you qualify for, you can apply for a loan estimate for each. A loan estimate will help you understand the total cost for each loan option, including interest, estimated monthly payments, and other costs associated with the loan.
Lenders are required to use a standard loan estimate form, so you’ll be able to easily compare the types of loans before making your final decision. Don’t be shy about bringing these estimates to your mortgage professional to help you understand the pros and cons of each estimate. A home loan is a big financial commitment, so fully understanding your options is the best way to ensure you’re comfortable with the loan you take on.