Looking to buy your first home? If so, then you'll also need to begin navigating the often-confusing process of getting approved for your first home loan. One of the most confusing aspects of mortgages for first-time buyers is that of interest rates. Before you even get pre-approved for your first loan, then, take some time to understand the basics of home loan rates.
They Can Be Fixed or Adjustable
For starters, when you get approved for a mortgage, you will generally have the choice between a fixed or adjustable rate mortgage (ARM). With a fixed mortgage, the interest rate will remain the same throughout the entire life of the loan term (typically between 15 and 30 years). With an adjustable rate mortgage, your interest rate can fluctuate with market changes.
Your Closing Date Can Affect Your Rates
Generally, when you are approved for a mortgage, the interest rate at which you're approved is "locked in" for a certain amount of time. Unfortunately, if the closing date on your home is changed for any reason, especially if it is moved back, this could affect your rate. This is why it's always a good idea to speak with your mortgage lender as soon as possible if there is a change in your closing date.
You Can Pay to Lock in Rates
On the other hand, if your rate is about to expire and you wish to lock it in for longer, you may have the option to do so. This is known as "buying points" on your mortgage, and it essentially allows you to pay for a longer lock-in period. If you exercise this option, just be sure to do the math to ensure that the money you're paying to lock in your rate is worth more than what you'll be saving in interest over the life of the loan.
Your Credit Will Affect Your Rate
Last but not least, take some time to review your credit score before you apply for a loan, as your score will have a big impact on the interest rate at which you can get approved. If you're applying for a mortgage jointly with a spouse, both of your credit scores will be taken into consideration.
By keeping this information in mind as you prepare to apply for your first home mortgage, you'll feel more confident and empowered throughout the process while making smarter decisions for yourself. For more information, contact a business such as Premium Mortgage Corp.