Housing debt is on the rise. As noted by Marketplace, Americans collectively owe almost $9 trillion. While this is good news for the economy, Arizona borrowers still recovering from recent financial downturns and looking to maximize mortgage investments need mortgage lenders that have their best interests in mind.
But how do you find a local mortgage lender in our state that exceeds your expectations? No matter your circumstance — first home, a second property, or refinancing — here are five tips to help you save money.
The (Very) High Cost of Interest
Mortgages are long-term investments. According to the Washington Post, 30-year terms remain the most popular among homebuyers and the average rate is now 4.83 percent. On paper, that almost-5 percent doesn't seem like much, but even small changes to interest rates can make a big difference in monthly payments.
As noted by Money Under 30, for example, if you have a $200,000 home loan over 30 years with a downpayment of $40,000, an interest rate of 3.50 percent means you're paying $718.47 each month on your mortgage. Bump this up half a point to 4 percent and your payment is $763.86. Hit 4.50 percent and you're paying out $810.70 — almost $100 more — every month. This translates to almost $30,000 more over the length of your mortgage.
Speaking of length, the longer your mortgage, the more interest you pay. A 30-year mortgage for $200,000 at 5 percent means you pay almost $185,000 — lowering the term to 25 percent reduces total interest payments to just over $150,000. Even at 6 percent, the 25-year mortgage pays less interest than the 30-year term at 5 percent.
Confused? Look for mortgage lenders in Arizona willing to take the time and make sure you fully understand your options.
What About Adjustable Rate Mortgages (ARMs)?
ARMs often sound like a great idea up front. As noted by Consumer Finance, these rates have an initial fix period after which they're tied to market fluctuations over specific periods (each month, bi-annually, or every year).
The problem? There's no way to predict the market. If rates go up, your interest payments could skyrocket and you could find yourself unable to meet mortgage obligations. And while some ARMs offer the ability to "lock down" rates, this typically comes with a cost.
Best bet? Find local mortgage lenders that offer a variety of mortgage options and quickly provide Good Faith Estimates (within three days, by law) of the terms and costs of a potential loan.
Finding the Lowest Rates
So how do you find the lowest rates for your new home purchase or refinancing? Start with your credit rating. A credit score higher than 760 can earn interest rates of less than 4 percent. Drop to 620 and you're paying over 5 percent. Also a good idea? Don't incur more debt before applying for a mortgage — avoid financing vehicles, furniture or other large items.
Next up, shop multiple lenders to see who can offer the best mortgage term and rate. Credit requests from multiple lenders can impact credit scores — borrowers should request that lenders "run numbers" rather than making full credit inquiries to avoid this issue. In addition, tapping multiple lenders makes it clear that you're serious about the process and can encourage healthy competition for rates.
About Those Other Costs...
Mortgages always come with extra costs. These might take the form of application fees, appraisal fees, taxes, title transfer fees, legal fees, and land surveys — and typically total 2 to 5 percent of your home's final sale price. For a $200,000 mortgage, this means $4000 - $10,000 in closing costs.
Some lenders offer "no fees," but in reality, they're bumping up your mortgage interest. Let's say your lender gives you 5 percent on $200,000 and pays the $7,500 you owe in fees. Over 30 years, you're paying $184,000 in interest. But if you pay these costs up-front and get 4 percent, you cut the interest to just $142,000.
Great mortgage lenders in Arizona should detail all closing costs and your options for rolling them into your mortgage or paying them up front.
Intangible Benefits
Good communication, ease of application, and rapid approval time make homebuyers feel more comfortable with lenders — and can save you money. According to Realtor.com, when comparing multiple rates you'll often get similar rates but also get the chance to see who's the most attentive and communicative, in turn making the process easier. For example, NB|AZ has a reputation for great communication "because they really get to know you."
Ease of application and rapid approval time, meanwhile, ensure you're not stuck in limbo while interest rates climb or sale prices skyrocket.
Finding a Local Mortgage Lender in Arizona
Find the right lender for your first home purchase or refinance in the Grand Canyon State by covering all the bases. Make sure your potential mortgage partner offers the best interest rates, fully explains your options, helps defray extra costs, and comes out ahead in communication to boost borrower confidence.
Ready to find your lender? Start with NB|AZ and see what we can do for you.