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Mortgage News Matters

Is the Lowest Rate the Best Rate?

Homebuyers who are new to the market may find themselves asking the common question, ‘Is the lowest rate the best rate?’ It’s a good question to ask because the answer can be somewhat complicated.

The short answer is no.

In some cases, even, a borrower might end up paying more for a lower rate. This is why understanding the difference between the lowest rate and the best rate is important. 

When determining the best rate, you will want to look at two major things: (1) the interest rate and (2) the APR.

What is the difference between Interest Rate and APR?

Interest rate is the rate a borrower pays on their home loan. This rate varies due to many factors, such as home price and loan amount, down payment, loan term, interest rate type – adjustable vs. fixed – loan type, and credit score, to name a few.

APR is the interest rate plus other fees and costs that go into buying a home. Which is, what a borrower will end up paying on top of the principal. These fees include the interest rate, origination fees, discount points, and closing costs – which include application and attorney fees, administrative or processing fees, insurance fees, property taxes, and expenses from the title company.

To determine the best rate, you will want to find the one that saves you the most money once you factor in fees, closing costs, and loan terms. You will want to look at the APR.

When looking at the APR you should pay attention to these major factors:

  1. Which fees are included? Sometimes fees, like appraisal fees, property taxes, and insurance costs are not included in the original APR quote. It can be helpful for borrowers to ask these questions upon receiving a quote from their lender, so they are not hit with unexpected costs later.
  2. Upfront costs? In some cases, lower APRs may have higher upfront costs, this is important for borrowers to acknowledge as well so they are not stuck paying unexpected upfront costs at closing.
  3. Take into consideration PMI, credit score, and down payment. Borrowers with less-than-perfect credit may qualify for a loan but will have a higher APR because of it. Likewise, those who put a smaller amount towards their down payment or who haven’t accounted for mortgage insurance may see an increase in their APR.
  4. Consider the length of the loan. The APR is calculated in relation to the length of the loan. This means, for a 30-year loan, the APR is determined assuming it will take 30 years for the loan to be paid off.

    However, many borrowers choose to pay their loans off earlier than the original term, which ultimately affects the APR. The best way to get the most accurate APR would be to keep the loan for the entire term. Or, if a borrower is anticipating paying it off early, they should be prepared for an increase in APR.

Understanding the difference between interest rate and APR is crucial when it comes to finding the best mortgage loan rate.

Moreover, understanding the costs that will affect your APR in the long run, is the only way to make sure you are getting the best rate possible.

Your best option is to sit down and talk with a Loan Originator who can help you break down the real, and sometimes hidden costs, that affect your APR to help you find the best deal for you! 

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Mortgage News Matters

7 Reasons to Get a Home Inspection

Buying a new home is one of the biggest financial decisions one can make throughout one’s lifetime. Though it may be tempting to move in as soon as you sign on the dotted line – it can be extremely beneficial to get advice from a professional before doing so. From saving money to providing peace of mind, the advantages of getting a home inspection far outweigh the decision to go without.

To better help you make your decision, we’ve put together a list of the top 7 reasons why getting a home inspection is important to any home buyer’s journey.

  1. Identify unseen or unpredicted structural problems that homebuyers may have missed otherwise. When performing a home inspection, a professional will assess areas that are mostly unseen like the roof, attic, foundation, plumbing, heating, and ventilation – just to name a few. They can discover undetected structural problems or leaks that could be costly to fix if they are left ignored for too long.
  2. Ability to renegotiate with the seller. By identifying these major, but common problems before closing and officially moving in, homebuyers can renegotiate terms with the seller by using their home inspection as leverage. What’s more, is it can be used as a contingency in the home buying process which allows a buyer to back out of a home sale without penalty if there are defects.
  3. Save money. Like identifying unseen structural problems and acting as leverage in negotiations, a home inspection saves homebuyers money. Ranging between $300-500, a home inspection is often more affordable than the money spent on major repairs after the deal is already done.
  4. Safety. One of the biggest benefits of performing a home inspection is the safety aspect. By having a professional determine any structural, plumbing, or electrical issues – to name a few – buyers can be sure that they are taking all the proper precautions beforehand, and rest assured their new home is safe.
  5. Estimate maintenance costs. In addition to discovering any issues that can be worked out in negotiations, a home inspection will also provide homebuyers with an estimate of general, or future, home maintenance costs. Allowing them to be best prepared for any issues they may incur.
  6. Insurance. It is true that some insurance companies will not cover homes with certain conditions, which is why it is essential that home buyers perform a home inspection. This way, homebuyers can better understand if their home has any issues that may not be covered by insurance policies, sooner rather than later.
  7. Peace of mind. Lastly, getting a home inspection provides peace of mind for any new home buyer. It gives buyers insight into any conditions that their home may have and many manageable solutions to repairing them, or at least negotiating how to handle them so they are not left paying much more than they planned for.
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Mortgage News Matters

How to Choose the Best Mortgage for You

Any homebuyer will tell you that choosing the perfect mortgage is just as important as choosing the perfect home. For many, buying a home with cash is not possible, which is why finding the right mortgage loan program is essential. When choosing the right mortgage for you, it is important to find one that works with your unique budget, as it is an expense that you will be paying off over the course of many years.

To better help you on your home buying journey, we’ve compiled a list of 5 guidelines to follow when choosing the right mortgage for you.

  1. Determine how much you can afford. Your mortgage is made up of two main costs. These are (1) the loan principal and (2) the interest. The principal is the loan amount you are applying for. The interest is the additional amount tacked onto your monthly payments, as a fee for borrowing money from your lender. Your monthly payments are paid through an amortization schedule set by your lender. For more information on determining how much of a mortgage you can afford, take advantage of our free Mortgage Calculator offered on our website.
  2. Set a goal and start a savings plan. We’ve said it before and we’ll say it again, buying a home is one of the biggest financial decisions one can make in one’s lifetime. There are many costs to consider outside of the initial sale price listed on the For Sale sign. Costs like down payment, closing costs, and insurance to name a few. It is important to acknowledge each of these commonly overlooked costs before purchasing a home and setting a goal to achieve them. For a comprehensive list of these costs, refer to our post on Costs to Consider.

    In addition, you’ll want to start a savings plan that can act as a step-by-step guide to reaching your savings goals. For helpful tips on saving towards your home buying goal, refer to our blog on How to Start Saving for a Down Payment.
  3. Consider different types of mortgage loan programs. Since each homebuyer has needs and wants that are unique to them, there are a variety of mortgage loan programs to choose from. At VanDyk Mortgage, we specialize in 15- and 30-year Conventional loans, FHA loans, USDA, VA, and Adjustable Rate Mortgage loans.

    Each loan program has different requirements and qualifications that must be met by borrowers. For an extensive list of each loan program and its specific qualifications, refer to our Mortgage Loan Options on our website.
  4. Understand how much insurance you will be required to pay. The cost of mortgage insurance varies depending on which type of mortgage loan you end up choosing. For some loans, insurance is required, while for others, it comes in the form of an upfront funding fee.

    Your insurance premium is based on different factors, such as the amount of money you can put towards your down payment or your own unique credit score. For more information on mortgage insurance and how much it could cost you, refer to our post What is Mortgage Insurance?
  5. What type of loan do you qualify for? One of the most important questions you can ask yourself when choosing the right mortgage loan for you, is ‘What type of loan do I qualify for?’ You can be as determined as you’d like to save towards your goal for the perfect home, but if you don’t qualify, your efforts may be in vain.

    The best way to determine this is to talk with an experienced Loan Originator as soon as you are ready to start looking for your new home. They can go over all of your loan options, what types you qualify for and how to start saving towards your goal. To reach out to one of our experienced Loan Originators, contact us today!
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Mortgage News Matters

What is Mortgage Insurance?

Mortgage Insurance, sometimes referred to as Private Mortgage Insurance, is an essential element of the home buying process. By making it possible for a homebuyer who does not meet the qualifications to receive a mortgage loan, mortgage insurance, provides assurance to the lender in the event that the borrower is unable to continue making their mortgage payments.

Mortgage Insurance, therefore, lowers the risk to the lender of loaning to an unqualified borrower and benefits the borrower by making it possible for them to receive a mortgage loan and purchase a home, they would otherwise be unable to purchase.

There are many types of loan programs that require mortgage insurance, and some that allow borrowers to roll insurance premiums into their monthly mortgage payments. To help you decipher which programs require which types of insurance plans, we’ve compiled a list for you below!

  1. Conventional Loans. Conventional loans require private mortgage insurance and vary depending on the amount you put down and your credit score. Insurance payments are made monthly and have little or no cost due at closing. One of the perks of conventional loans regarding mortgage insurance is that homebuyers – who put less than 20% down – can cancel their insurance once they own 20% equity in their home.
  2. FHA Loans. Though mortgage insurance is required for FHA loans, it differs from conventional loans as it does not depend on a borrower’s credit score. For this type of loan, insurance premiums change if a borrower puts less than 5% for their down payment. For FHA loans, insurance is included in the upfront cost, closing costs, and monthly payments.
  3. USDA Loans. Like an FHA loan, a USDA loan with an insurance premium includes costs at closing as well as in monthly payments. However, USDA loans typically have a lower insurance rate than FHA loans.

    It is important to note that for both FHA and USDA loans, the borrower has the option to roll the upfront portion of their insurance premiums into their monthly mortgage payments, rather than paying out of pocket. However, this option will increase both the borrower’s loan amount and overall costs.
  4. VA Loans. A much different type of loan program from the rest, VA loans are not required to have monthly insurance premiums, however, they do require an upfront funding fee that is based on a few factors.

    These are, type of military service of the borrowers, the amount the borrower can put towards their down payment, disability status, whether they are buying or refinancing their home, and whether or not it is their first VA loan.

    Like in the case of FHA and USDA loans, borrowers can roll this upfront funding fee into their monthly mortgage payments, but it will increase their loan amount and overall costs.

For more information on the different types of loan programs and mortgage insurance plans that we offer at VanDyk Mortgage, contact one of our Loan Originators today!