Compare Top Mortgage Lenders
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Lender |
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Min. Down Payment |
Min. Credit Score |
|---|---|---|---|---|
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New American Funding, 4.7, NMLS #6606 |
See Offers | 3% | 620 | |
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Rocket Mortgage, 4.8, NMLS #3030 |
See Offers | 1% | 620 | |
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First Horizon Bank, 4.5, NMLS #472329 |
Read Review | 3% | 620 |
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Bison State Bank, 4.9, NMLS #757416 |
See Offers | 3% | 620 | |
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Farmers Bank of Kansas City, 4.9, NMLS #613839 |
See Offers | 3% | 620 |
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NBKC Bank, 4.7, NMLS #409631 |
See Offers | 3% | 620 | |
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First Federal Bank, 4.6, NMLS #408902 |
See Offers | 3% | 620 | |
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AmeriSave, 4.4, NMLS #1168 |
See Offers | 3% | 620 | |
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Watermark Home Loans, 4.9, NMLS #1838 |
See Offers | 0% | 620 | |
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PNC Bank, 4.7, NMLS #6292 |
See Offers | 3% | 620 |
What Is a Mortgage?
A mortgage is a type of loan specifically designed to finance a home or other type of real estate. When you take out a mortgage, you enter into an agreement with your lender to pay off your loan plus interest in a designated period of time – usually between 15 and 30 years – or the lender has the right to seize your property.
There are various types of mortgage loans with different terms and conditions, such as fixed versus adjustable interest rates, varying repayment term lengths, potential penalties and more. Choosing the right mortgage involves thoroughly researching the lender and their policies, finding the best interest rate and evaluating which repayment plan best matches your financial situation.
What Is a Good Interest Rate?
Mortgage interest rates can vary significantly over time and are based on a range of factors, including the type of mortgage you take out. For instance, you might be able to score a lower rate by taking out a 15-year mortgage or a VA loan.
Some mortgages come with fixed interest rates – meaning the rate you agree to when you take out the mortgage won’t change unless you refinance your loan. Adjustable-rate mortgages, on the other hand, have rates that change over time.
What Impacts Average Mortgage Rates?
A number of factors influence mortgage rates, such as borrowers’ creditworthiness and the overall health of the economy. Unlike with credit cards, fixed mortgage rates aren’t heavily influenced by movements in the federal funds rate, the benchmark interest rate set by the Federal Reserve. However, the federal funds rate does have a more significant impact on adjustable-rate mortgages and short-term loans.
Lenders rely on analysis of trends in the federal funds rate, inflation and economic conditions, as well as the borrower’s personal credit history, when determining mortgage interest rates.
What Are the Different Types of Mortgages?
All mortgages are not created equal, and there are several types for a homebuyer to consider. These include:
- Conventional mortgages. Conventional mortgages are loans offered solely by financial institutions, without backing from a government agency. Qualification requirements might be more strict than government-backed mortgages, but you could score a better rate.
- Government-backed mortgages. These loans are insured or guaranteed by government agencies. Two common options include Federal Housing Administration loans and Department of Veterans Affairs loans. While these loans might come with a lower down payment and other favorable terms, you’ll need to meet specific eligibility requirements.
- Fixed-rate mortgages. Fixed-rate mortgages come with an interest rate that remains the same throughout the duration of your loan. Several kinds of loans come with this payment structure.
- Adjustable-rate mortgages (ARMs). Adjustable-rate mortgages have interest rates that can fluctuate over the life of your loan. This can save borrowers money if rates improve, but can also cost more if rates go up.
- Interest-only mortgages. An interest-only mortgage, which typically comes with an adjustable interest rate, offers borrowers the opportunity to pay only interest costs – no principal payments – for a set period of time. Homeowners are not building equity in their home until this period ends and they begin making payments against the principal.
- Jumbo loans. The Federal Housing Administration sets a baseline limit for mortgage loans, which ranges from $472,030 to $1,089,300. If you need to borrow more than this amount, you’ll have to take out a jumbo loan, which is a conventional mortgage with a higher borrowing limit and stricter qualification requirements.
What Does It Mean to Refinance a Mortgage?
In some cases, a borrower might choose to refinance their mortgage, which involves taking out a new loan to pay off their current mortgage. The benefits of this process can include scoring a lower interest rate or monthly payments, though drawbacks include paying closing costs and other fees.
For borrowers paying a fixed-rate mortgage at a high interest rate, refinancing can be worth the cost – but you’ll need to thoroughly research your options before deciding if it is best for you.
Should I Get Preapproved?
Mortgage preapproval is a process that can help borrowers know exactly how big a home loan they can qualify for. A potential lender will pull your credit and review your financial situation to determine your eligibility for a loan, then provide you with a preapproval letter stating your eligibility and the size of loan you qualify for. This can be an incredibly useful tool in the home search process, as it shows the seller that you can secure necessary funding.
Keep in mind that while a preapproval for a mortgage is a good sign you will qualify for a loan, it is not a guarantee. Your actual terms may vary on formal application.
How Do I Find a Mortgage Lender?
Choosing a mortgage lender is an important process, and the best lender will depend on the individual. Consider the following questions before deciding which loan is best for you:
- Do you want a government-backed or conventional mortgage loan? If you qualify for a government-backed loan from the VA or FHA, it might offer better terms depending on your financial situation.
- Is a fixed-rate or adjustable-rate mortgage best for you? This question will depend on current interest rates, your financial plan and more. Consider consulting with a financial advisor to decide what makes sense for you.
- Do you need a jumbo loan? If you plan to purchase a home above the FHA baseline mortgage rate, make sure you choose a lender that offers jumbo loans.
- Which mortgage lender offers the best terms on prequalification or preapproval? Shopping around for the best rates is a critical part of the mortgage search process. Narrow down your search based on the above qualifications, then consider prequalification or preapproval with several lenders to find which offers the best terms.