What Is a Home Mortgage Loan?
A home mortgage is a loan used to purchase real estate, often a primary residence. They also serve as investment property loans, which the buyer can use as another income source. When you sign a mortgage loan, you agree to repay a certain amount each month plus interest for the term of the mortgage. Most mortgages last 15 or 30 years, but some lenders offer other mortgage terms.
With a mortgage, the home or property acts as collateral for the loan. If you do not make payments, the lender can eventually repossess the home. If you want to change the terms of your mortgage, you can apply to refinance for a lower interest rate or shorter loan term.
Conventional mortgages require a 3% down payment. They allow you to finance a home worth up to an annual maximum established by Fannie Mae, a federally-based mortgage company. Government-backed mortgages, such as FHA, VA, and USDA loans, have less strict approval requirements. Jumbo mortgages exceed the threshold for conventional mortgages.
Check Your Rates on Rocket Mortgage
What Is a Mortgage Rate?
Mortgage rates express the amount of interest you will pay on your mortgage as a percentage. For example, if you borrow $300,000 with a 5% fixed interest rate, you will pay $15,000 in interest by the time you pay off your home (unless you pay more toward the principal or refinance).
A variety of factors determine the current mortgage rates, including economic indicators such as inflation and unemployment as well as actions by the Federal Reserve. The rates change each day, which is why most lenders post today’s mortgage rates on their homepages.
Your financial history affects your ability to qualify for the best mortgage rates. In general, you should aim for a credit score of at least 740 to save the most money possible on interest. Lenders also look at the loan-to-value ratio (LTV) when determining home loan rates. This number represents the amount you will borrow in comparison to the value of the property. The LTV should be less than 80% for the lowest mortgage rates.
See Mortgage Loan Offers on Rocket Mortgage
How to Choose the Right Mortgage Lender for You
Choosing the right mortgage company is essential to securing the best loan terms and saving money over time. With so many good mortgage lenders available, it’s important to compare rates, fees, and customer service to find the best lenders for mortgage. Below is a guide to help you evaluate top mortgage lenders and choose the right one for your needs.
Compare Mortgage Rates from Top Lenders
The first step in selecting a lender is to compare interest rates from the best mortgage lenders. Rates can vary daily, so it’s crucial to check multiple lenders to find the lowest rate available. Key factors to consider include:
Advertised vs. Actual Rates – The lowest advertised rates may require excellent credit and a high down payment.
APR (Annual Percentage Rate) – This reflects both the interest rate and additional lender fees.
Fixed vs. Adjustable Rates – Fixed rates stay the same, while adjustable-rate mortgages (ARMs) fluctuate over time.
Many of the best online mortgage lenders offer rate comparison tools to help borrowers quickly find the most competitive options.
Consider Different Loan Types
Not all mortgage companies offer the same loan programs. The best lender for you will depend on your specific loan needs:
Conventional Loans – Ideal for borrowers with good credit and at least a 3% down payment.
FHA Loans – Great for first-time buyers or those with lower credit scores.
VA Loans – Designed for veterans and military service members, offering competitive rates with no down payment.
Investment Property Loans – Look for top mortgage lenders that specialize in financing rental properties.
If you’re unsure which loan is right for you, working with a mortgage broker can help. Brokers compare loans from multiple lenders and may secure better deals than borrowers can find on their own.
Compare Fees and Closing Costs
Even if a lender offers a low interest rate, high fees can make the loan more expensive in the long run. When comparing each mortgage company, request a Loan Estimate that outlines all fees, including:
Origination Fees – Charged by lenders to process the loan.
Discount Points – Upfront fees paid to lower your interest rate.
Closing Costs – Includes title fees, appraisals, and other charges.
Some of the cheapest mortgage lenders offer low or no closing cost options, which can be beneficial for cash-conscious buyers.
Read Customer Reviews and Ratings
Before choosing a lender, check customer reviews and ratings from sources like the Better Business Bureau (BBB) and Trustpilot. Look for:
Responsiveness and Customer Support – Are they easy to reach and helpful?
Loan Processing Speed – Do they close loans quickly and efficiently?
Transparency – Are there any hidden fees or misleading terms?
Some of the top rated mortgage lenders are known for exceptional service, while others may have complaints about slow processing or poor communication.
Get Preapproved and Compare Loan Offers
Once you’ve narrowed down your options, apply for preapproval with at least three mortgage companies. A preapproval will show you what interest rates and terms you qualify for, allowing you to compare:
– Monthly Payment Amount
– Loan Term (15 vs. 30 years)
– Interest Rate and APR
– Closing Costs and Fees
Lock in the Best Mortgage Rate
Interest rates fluctuate daily, so when you find a competitive rate from one of the top mortgage lenders, consider locking it in to protect against future increases.
Finding the best mortgage lenders takes research, but comparing rates, fees, and reviews can help you secure the best deal. Whether you prefer best online mortgage lenders for convenience or have “mortgage lenders near me” in mind for in-person service, taking the time to evaluate your options will help you save money and get the best loan for your needs.
See Mortgage Loan Offers on Veterans United
How to Get Approved for a Low Interest Rate Mortgage
If you want to qualify for the lowest mortgage rates, follow these strategies to put the odds in your favor:
Save a Sizable Down Payment
As mentioned, lenders look at the property’s LTV ratio when setting home loan rates. The more you put toward your down payment, the lower your LTV, which in turn lowers your interest rate. Aiming for 20% can also save you money on the cost of private mortgage insurance.
Do the Math Before You Pay Points
You can pay more money upfront at closing in exchange for a reduced interest rate on your home loan. This practice, called paying points, doesn’t necessarily save you money on home mortgage rates. It can take almost a decade before you break even, so make sure it makes financial sense before you move forward.
Consider an Adjustable Rate
Adjustable-rate mortgages often have more favorable interest rates than fixed-rate mortgages, especially during the introductory period. After the first three to 10 years, the mortgage rate changes based on market conditions and can go up or down depending on your loan documents.
Shop around for the best prices
Mortgage interest rates and other costs vary dramatically from lender to lender. You can compare current interest rates quickly by using a platform like Credible. The site provides quotes from 13 different home loan companies so you can check for the best mortgage rates. Some lenders even offer a no closing cost mortgage, but those may have other drawbacks or strict requirements for approval.
Check Your Rates on Better Mortgage
How to Apply for a Mortgage Loan
First, you’ll need to submit personal and financial information to each lender, and many will offer to send you mortgage quotes after reviewing your finances. Most institutions now offer completely online applications, and you can even compare loan offers from multiple lenders on sites like LendingTree and Credible. However, you can usually access personal assistance by phone or even in-person if you choose a lender with traditional branches in your area.
Most mortgage applications ask you to input your Social Security number, income, assets, debts, address history, and other general information for a preapproval. This letter from the lender indicates your available loan terms, amount, and interest rate if you decide to move forward with the process. Some preapprovals require a credit check but others do not.
The lender must provide a loan estimate form within three business days of your application. This legal document indicates all costs related to the loan, including principal, interest, insurance, property taxes, closing costs and fees. Depending on this estimate, you can decide whether to move forward with the loan.
When you accept the terms of a loan estimate, you must provide documents to support your application. Examples include tax forms, proof of income such as pay stubs, bank statements for all accounts, investments, and credit cards, and information about your employment status. Many lenders assign a loan coordinator to guide you through the process of submitting your paperwork.
See Mortgage Loan Offers on Rocket Mortgage
How Does the Mortgage Loan Process Work?
Once you submit all supporting paperwork, your loan will enter the underwriting process. The lender will check to make sure you have the credit and income to repay the loan and confirm other aspects of your application.
The lender will also verify your down payment and funds for closing. The underwriting agent will confirm the source of large deposits in your account and confirm that you have cash reserves. Many lenders require savings of at least two to three times your monthly mortgage amount in reserve to complete the underwriting process.
During the mortgage application process, the bank will order an appraisal of the home. They want to make sure its value exceeds the amount of the mortgage loan. You may also want to have a home inspector evaluate the property before you move forward with the purchase. Some mortgages, such as FHA loans, require the borrower to get a home inspection.
Three days before the scheduled closing date of your mortgage, the lender must provide the closing disclosure. This legal document provides the final terms of the loan as well as the total closing costs. If the disclosure meets your expectations, you make your down payment and closing costs at settlement, where you receive your keys and take ownership of your new home.
See Mortgage Loan Offers on Veterans United
What is Prequalification?
A mortgage pre-qualification is an initial step in the home loan process that helps buyers determine if they qualify to buy a house and how much they might be able to borrow. To pre qualify for a home loan, lenders review basic financial information such as income, assets, debts, and credit score without a formal credit check.
Many buyers ask, “How do I prequalify for a home loan?” The process is usually quick and can often be done online or over the phone. While a preapproval mortgage requires more documentation and a credit check, pre-qualification is a simpler estimate of loan eligibility. Learning how to get prequalified for a home loan can help buyers understand their mortgage qualification and set realistic expectations.
See VA Loan Offers on Better Mortgage
FAQ
What’s the difference between an adjustable and a fixed-rate mortgage?
A fixed-rate mortgage has the same interest rate for the life of the loan. Adjustable-rate mortgages (ARMs) have a low fixed rate for an initial period, often one year. The terms of your loan indicate how and when the rate will adjust. For example, a 5/1 ARM has a low fixed rate for five years and then changes every year. It can go up or down.
Will applying for a mortgage affect my credit score?
During the underwriting process, your lender will do a “hard pull” of your credit. This can lower your score, especially if you have several hard inquiries within just a few months. Over time, however, a mortgage tends to build credit by diversifying your history and establishing a good payment record over many years.
How long does the mortgage application process take?
The process varies by lender and financial situation, but most qualified borrowers can close on a mortgage loan within about 30 days. The average loan closing time is just 21 days, while both LendingTree and Rocket Mortgage report that their loans typically close within 30 days.
What do mortgage lenders consider when reviewing applications?
Each lender has its own requirements for loan approval. However, most mortgage lenders require a debt-to-income ratio of no more than 43% and a credit score of at least 580 depending on the type of mortgage. You must also account for your down payment funds and show a work history of at least two years. The property must meet the lender’s appraisal requirements.
Which mortgage term is best?
If you choose a 30-year mortgage, you will have lower monthly payments. However, the loan will cost more in interest by the time you pay it off. A 15-year mortgage has higher monthly payments but less expensive interest over the life of the loan. The answer depends on your individual situation and financial goals.