Shopping around for the best loan terms and rates is important borrow from a bank. But it is especially crucial that you put in the time it takes to find a loan with the best terms when you are taking out a home loan. That is because chances are good you will be borrowing a lot of money and having to repay it over many decades.
Unfortunately, searching for the perfect mortgage can sometimes be difficult because there are a lot of different lenders and types of loans you can pick from. The good news is, it is easier to find the right load if you take Suze Orman’s advice on the three-step process.
Here are the steps Suze Orman says you need to take when searching for a home loan.
1. Don’t let the budget be set by your lender
The first step Orman recommends taking is to figure out how large of a home loan fits your budget.
She says you should be making your own choices about how much money to borrow rather than allowing the mortgage companies to suck you in and offer you a bigger loan than you are comfortable with.
Mortgage lenders normally want to provide you the biggest loan they think you will be able to afford, as this will maximize their profit. While it is tempting to take more money and purchase a more expensive home, the fact is a big mortgage payment might interfere with your other financial goals you have.
If you take the time to choose what fits your budget the best– while also completing other tasks, such as saving for retirement — you are much less likely to be talked into borrowing a large amount of money that will leave you house poor.
2. Shop around with other financial institutions
Orman warns against assuming that your current bank will always offer the best deal on a home loan.
Instead of sticking with the same bank and just applying for your mortgage loan with the financial institution you are already doing business with, Orman recommends applying with at least three other lenders.
This is her most important advice, as there could be wide variation in terms and rates among mortgage lenders. Even an increase that is small could add tens of thousands in added interest over the life of the home loan. You do not want to settle for a terrible deal on a mortgage loan just because you do not realize you can do better.
3. Work with a lender who will get the deal done
Finally, Orman recommends looking at how effective other lenders are at getting the loans closed when you pick which mortgage to apply for.
As she explains, a lot of lenders could take too long to get your loan to closing. This will can end up costing you a house if the seller is trying to have a fast sale or if you exceed the amount of time that is allowed to secure the financing based on what your purchase agreement says.
Orman recommends asking real estate agents which lenders are usually efficient — and do not tend to cause issues — during the closing process.
By following all these tips, you might find an affordable home loan at a low rate that closes fast so you will end up happy with your new home purchase.