Fixed-Rate vs. Adjustable-Rate Mortgages
A fixed-rate mortgage keeps the interest rate used to calculate principal and interest unchanged. An ARM changes based on an index and margin after its initial fixed period, so do not look only at the initial rate. Check the adjustment frequency, caps, and worst-case monthly payment.
2. Down Payment and PMI
Generally, you can avoid PMI (private mortgage insurance) by making a down payment of 20% of the home price. With a down payment below 20%, PMI costs are added and increase your monthly payment. FHA loans are available with a low down payment of 3.5%, but mortgage insurance premiums (MIP) apply. VA loans for veterans and USDA loans for rural areas offer 0% down payment options.
Your Rate Is Not Determined by Your Credit Score Alone
Lenders consider your income, existing debts, assets, down payment, and loan type along with your credit report and score. There is no standard that guarantees the lowest rate at a specific score. Check your report for errors before applying.
Consider Points and Fees Together
Points are upfront costs paid in exchange for a lower interest rate, but they do not guarantee that the rate will fall by a specific amount. Compare the interest rate, APR, cash needed to close, and five-year interest and fees in each Loan Estimate under the same terms.
Compare Actual Offers Instead of Forecasts
Do not choose a loan product based on an attempt to predict the direction of rates. Preapproval and a rate lock are not the same, and lock periods and extension fees vary by lender. Review the terms in writing.