Mortgage Guide:

Compare Lenders & Learn About Mortgage Loans

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One of the most important financial decisions you will make in your life will be the decision to purchase a home, likely with the use of a mortgage. Luckily for you, it is easier than ever before to compare various mortgage loan offers from different lenders.

After taking out a mortgage, your mortgage payment will last for years, perhaps decades, so it is imperative to compare mortgage rates from the best mortgage lenders.

Below, you will find a list of some of the best mortgage loan lenders currently doing business in 2019. Use the information found in this list to compare various loan terms from each of the lenders, including minimum credit score needed, average interest rates and rate ranges, mortgage rates, minimum down payment required, customer service offerings, and potential fees.

Remember that before you start shopping for a home and a mortgage, you should first confirm that your credit history is accurate, check your credit score, and evaluate how much home you can afford.

To try to help you find the best mortgage lender with the ideal mortgage rate and term, TrueQuote Mortgage has laid out details about each lender below. 

Compare Mortgage Lenders in 2019

Everything You Need to Know About Mortgages

 

What is a Mortgage?

A mortgage is a loan provided by a bank or a financial institution, like a credit union or non-banking lender like Quicken Loans, that will help the borrower purchase a home without paying the total home price upfront.

The home that is being purchased via mortgage is the security for the loan, and if a borrower defaults on his or her home loan, the mortgage lender can sell the home and recover any losses incurred.

When it comes to paying a mortgage, payments are often made month-to-month and include charges related to principal, interest, taxes, and insurance.

 

How Does a Mortgage Work?

When a borrower and mortgage lender enter into a mortgage agreement, the borrower will agree to a set length of time, usually 15 or 30 years, to repay the money that was loaned to them to purchase the home.

A specific interest rate and terms will be applied to the mortgage loan, and the borrower will repay the home loan in recurring monthly payments.

What Are the Different Types of Mortgages?

Mortgages can be categorized into three different types including:

  • Conventional Loans: any mortgage that is not insured or backed by the federal government.
  • Government-Insured Loans: still offered by private mortgage lenders like conventional loans, but backed by the federal government.
  • Jumbo Loans: Similar to conventional loans, except the home price exceeds the federal loan limits.

Fixed-Rate Mortgages

The most popular type of mortgage loan is a fixed-rate mortgage, and the main differentiator for this type of home loan is that the mortgage interest rate will remain the same throughout the duration of the home mortgage.

If you are a fan of consistency, than a fixed-rate mortgage might be the right mortgage option for you as your monthly payment will not change with the exception of changes made to things like insurance premiums or property taxes.

 

Adjustable-Rate Mortgages

This type of home mortgage, otherwise known as ARMs, will first start with an initial fixed-rate period when the mortgage interest rate will not fluctuate. Following this period will come a longer timeframe in which the interest rate could potentially change.

There is certainly some risk associated with adjustable-rate mortgages as the interest rate could potentially increase, which could leave you in a precarious situation as you will have a hard time predicting monthly loan payments down the road.

 

Jumbo Mortgages

Jumbo mortgages are quite similar to conventional loans, except this type of mortgage loan comes with much larger loan limits that surpass standard federal loan limits.

According to the Federal Housing Finance Agency, the maximum conforming loan limit for single-family homes in a large portion of the United States is $484,350 in 2019. You will typically see jumbo mortgage loans in areas of the country that have high real estate prices, like the Northeast and California. This type of home mortgage also usually requires more detailed documentation during the approval process.

Government-Insured Loans

There are three different federal government agencies that back government insured-loans:

  1. Federal Housing Administration (FHA loans)
  2. U.S. Department of Agriculture (USDA loans)
  3. U.S. Department of Veterans Affairs (VA loans)

It is important to know that the U.S. government itself is not a mortgage lender, but instead sets the general parameters for each type of mortgage loan that is offered by private mortgage lenders.

 

How Long Will You Be Repaying a Mortgage For?

It really will depend on the type of mortgage you select, especially the specific repayment terms. For example, fixed-rate mortgage loans can be for either 10, 15, 20, 30, or 40 years.

Or, if you decide to go with an adjustable-rate mortgage, this type of mortgage loan will have an initial, fixed-rate interest window of either three, five, seven, or 10 years. Once that initial fixed-rate interest period is over, the adjustable-rate mortgage will become susceptible to interest rate increases or decreases throughout the remaining life of the mortgage loan.

How Do You Choose the Best Mortgage For You?

The mortgage loan type that you end up going with will be almost entirely dependent on your specific personal finance situation, which will be impacted by things like your credit score and credit history, employment history, amount you are able to pay for a down payment, and your debt-to-income ratio.

Further, other factors should also be considered like the anticipated amount of time that you will stay in the home, the kind of property you want, and if you would even qualify according to the mortgage lender’s requirements.

Fixed-Rate Mortgage

PROS

P

Interest rate will remain the same for the life of the loan.

P

Steady interest rate means a consistent monthly payment that you can budget for more easily.

CONS

O

Fixed nature of interest rate means that you sometimes will be stuck paying a higher interest rate, and possibly a greater monthly payment, as opposed to other types of mortgages.

O

If you do decide you want a lower interest rate, you will have to refinance the mortgage loan, which leads to paying closing costs again.

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How Do You Know If a Fixed-Rate Mortgage is Best For You?

  • You have plans to stay in the same home for a long period of time.
  • You are a mortgage borrower that is seeking consistent payments month-to-month with the exact same mortgage interest rate for the life of the loan.

Adjustable-Rate Mortgage

PROS

P

During the early years of this type of home mortgage, you will be dealing with a lower mortgage interest rate, in addition to lower monthly payments, than usual.

P

Because of the lower monthly payments during the initial years of the mortgage, you may be eligible to qualify for more home.

P

With a bit more cash freed up due to the low mortgage payments early on, you might have a larger budget for things like investments, renovations and repairs, and homeowners insurance.

 

CONS

O

Mortgage interest rates, and thus monthly payments, may climb throughout the duration of the mortgage loan.

O

Subsequently, the higher mortgage rates and recurring payments can be incredibly difficult to manage when the mortgage terms reset.

O

All of this makes adjustable-rate mortgages quite hard to grasp.

O

Mortgage loan lenders have a greater ability to customize the terms of the home loan so that they are putting themselves in a better position at the expense of the borrower.

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How Do You Know If an Adjustable-Rate Mortgage is Best For You?

  • Unlike a fixed-rate mortgage that favors a homeowner who wants to remain in the home, an adjustable-rate mortgage is optimal for you if you are looking to leave the home after only a few years, likely before the mortgage rates climb.

Government-Insured Mortgage

PROS

P

The credit requirements to qualify for a government-insured mortgage like an FHA home loan are more lenient.

P

Additionally, this type of mortgage loan only needs either a small down payment or no down payment at all like a VA mortgage loan.

P

Government-insured mortgages are available to both repeat and first-time homebuyers.

CONS

O

Government-insured mortgage loans also come with mandatory mortgage insurance premiums, in lieu of PMI, that sometimes cannot be cancelled.

O

Overall borrowing costs over time are usually quite steep as both credit and down payment requirements are quite low.

O

This type of home loan also could come with a heavier documentation requirement.

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How Do You Know If a Government-Insured Mortgage Is Best For You?

  • If you have minimal cash savings stowed away in the bank, mediocre credit, or simply can’t qualify for a more conventional mortgage loan, a government-insured mortgage might be best for you.
  • And specifically, if you served or currently serve in the military, a VA loan will usually offer the best mortgage terms for your situation.

Jumbo Mortgage

PROS

P

Jumbo mortgages can be great if you are looking to get loaned more money to purchase a pricier home in an expensive area.

P

Interest rates on jumbo mortgages are often times more competitive when compared to other types of mortgage loans.

CONS

O

For this type of mortgage, a considerable down payment, usually between 10% and 20%, will be necessary.

O

You will need a minimum FICO credit score of 660 to qualify for this type of home mortgage, but in reality, it will usually need to be above 700.

O

A debt-to-income ratio of 45% is the upper most limit in order to qualify for a jumbo mortgage.

O

You must also have assets in cash or your savings account that equate to 10% of the total mortgage amount.

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How Do You Know If a Jumbo Mortgage Is Best For You?

  • If you consider yourself to be a high-end mortgage borrower that has excellent credit, substantial income and savings, and can meet a high down payment in order to purchase a more expensive home, than a jumbo mortgage might just be best for you.

Calculating Your Mortgage Loan

Remember, taking out a mortgage loan is a serious financial commitment that you will have to continually budget for over the span of multiple decades potentially. Because of this financial obligation, it is imperative to forecast your mortgage loan payments before you sign on the dotted line.

Using the TrueQuote Mortgage mortgage loan calculator, you will be able to more accurately estimate monthly mortgage payments and rate options that will vary depending on your specific personal finance situation; specifically, your credit history and score, annual income, assets, and savings will impact your mortgage loan terms.

 

How Much House Can You Afford?

When determining the type of home you want to buy that will likely be paid for with the help of a mortgage loan, you must know your debt-to-income ratio.

To calculate how much house you can afford, use TrueQuote Mortgage’s affordability calculator that will inform you on how much house you can afford based on your monthly income, monthly debt expenses, and the mortgage terms you are looking for.

Generally, financial advisors will point to the 28/36% rule when determining how much house you can afford. This means that no more than 28% of your monthly income should be spent on housing expenses, such as food and general repairs, while no more than 36% of that monthly income should be spent on monthly debt payments, including on things like a mortgage, student loans, and credit cards.

 

What Should the Size of Your Down Payment Be?

The size of your down payment will really be dependent on both your own personal finance situation and the type of mortgage loan you utilize. Your down payment is important because it will determine the interest rate you receive on your mortgage, which ultimately will decide how much extra or less you pay for your home.

Generally, a down payment that is 20% of the total purchase price of your home is seen as status quo to get a deal done and become a homeowner. However, 20% is not always necessary. For example, you can buy a home by only putting 3.5% down if you use an FHA home loan.

VA loans, another type of government-insured mortgage, do not require putting any money down, but they are only available to U.S. military members and veterans.

But when talking about conventional mortgage loans, a down payment can go as low as 5% for mortgage loans that are under $500,000; if the mortgage goes above that half-million mark, mortgage lenders will typically require a larger down payment.

So, if you can’t meet a 20% down payment, and are not using a government-insured loan that doesn’t require private mortgage insurance (PMI), than you will likely be required to pay for PMI as your mortgage lender will want to feel secure after handing over a larger mortgage loan.

 

Paying For Private Mortgage Insurance (PMI)

As noted above, private mortgage insurance (PMI) is typically required when you fail to meet the 20% down payment that is preferred by mortgage lenders. If you are using a government-insured loan, PMI will not be necessary no matter the size of your down payment as these types of mortgages have premiums built in.

PMI simply protects the lender in the event that you are unable to meet your monthly mortgage payments.

Typically, PMI will cost the homeowner between .5% and 1% of the entire mortgage loan amount each year. For example, if your mortgage loan is $100,000 and you have to pay a 1% PMI fee, you will pay around $83.33 each month, which equates to $1,000 a year.

PMI is often cancelled by the mortgage lender once you make enough mortgage payments to give yourself 20% equity in your home. With that being said, every mortgage lender is different and some will still require that you pay PMI.

 

How Do I Find the Best Mortgage Rate?

It is typically recommended that you compare and contrast mortgage products and rates from at least three different mortgage lenders. What rate you receive or are offered will depend on your specific finance situation.

For example, if you have an excellent credit score and little to no debt, you are going to look extremely attractive to mortgage lenders and will likely receive the most competitive interest rates that mortgage lenders can offer.

 

What is the Difference Between APR and Interest Rate?

The annual percentage rate, or APR for short, will give you a more accurate idea of the mortgage loan’s true cost since it accounts for a variety of borrowing costs, including mortgage insurance and other loan fees.

On the other side, the interest rate on a mortgage is a fee that the mortgage lender will charge you to borrow the principal loan amount. An interest rate can either be fixed, meaning it will remain constant throughout the life of the loan, or variable, meaning it is subject to fluctuations.

Both APR and interest rate are expressed as percentages.

 

When is the Right Time to Get a Mortgage?

Before you really start to look into specific homes, it is crucial to get preapproved for a mortgage that you will need to purchase the home. Going through the preapproval process will inform you on whether or not you need to fix your credit score or lower your debt levels.

Getting in touch with a mortgage lender in the initial stages of the home buying process will help you in identifying your qualifications as a mortgage borrower.

Mortgage Checklist

Now that you know a bit more about mortgages and the home buying process, let’s go through a mortgage checklist that will layout each step from researching different types of mortgages to choosing the best mortgage lender for you.

Are You Ready to Make a Down Payment?

  • When purchasing a home via mortgage, your down payment will be your first serious cost; ideally, you can make a 20% down payment to avoid PMI, but this is not necessary.
  • Making a down payment lower than 20% will lead to PMI and will also lead to less favorable mortgage terms, specifically when it comes to the interest rate you will be paying.
  • And finally, if you are utilizing a VA mortgage loan, you will not need to worry about a down payment.

Do You Have Enough Saved to Meet Monthly Mortgage Payments?

  • It is imperative to save plenty of cash in preparation for taking out a mortgage and purchasing a home. Your mortgage payments will come each month, and you want to make sure you have at least three months worth of mortgage payments stowed away.
  • Additionally, mortgage lenders will want to see that you have a significant amount of cash in the bank so that they can feel comfortable when providing you with a mortgage loan.

Do You Know What Your Credit History Looks Like?

  • It may just be three digits, but your credit score is quite important when applying for a mortgage as it gives mortgage lenders a picture of your financial health, which will ultimately determine what kind of mortgage and rate you receive.
  • If your credit score is subpar, take steps to rebuild it, including paying off existing debts, correcting potential errors on your credit report, and lowering your debt-to-income ratio.

Is Your Paperwork Handy?

  • As you might imagine, both the home buying and mortgage process require quite a bit of paperwork that you will need to have on hand when you begin applying for mortgages with various mortgage lenders.
  • Some examples of documentation that you will need include tax returns, pay stubs or W-2s, bank statements and proof of other assets, credit history, photo identification, and renting history.

Where Do You Want to Live and How Much House Can You Afford?

  • Knowing where you want to live will determine how much you can expect to pay for a home, which in turn will impact your mortgage terms and rates. First, pick out an area that you will want to call “home” as this will give you an idea of the budget you need.
  • After this, you need to determine how much house you can afford. To do this, you can use TrueQuote Mortgage’s affordability calculator that will account for things like your monthly income, monthly debt expenses, and mortgage terms to evaluate how much house you can afford.

Compare Rates & Decide on the Right Mortgage Lender For You

  • Once you have your finances, paperwork, and ideal budget lined up, you can start comparing various mortgage rates from various mortgage lenders to determine which will be right for your financial situation.
  • Apply with at least a few different mortgage lenders within a short period of time as this will help ensure you have multiple mortgage options that will hopefully lead to you getting the ideal mortgage rate. Also, by doing all of this within a short period of time will limit the damage that multiple credit inquiries can have on your credit score.
  • Taking out a mortgage and buying a home is a serious financial and life commitment, so take your time, evaluate all of the options, and try to choose the mortgage lender and rate that looks the best for you.