So, you’re buying a house. Congratulations! That’s a huge step, and one you can truly take pride in. Even so, you might be a little nervous as well. After all, choosing to purchase a home is only the beginning; you need to pick the right home, as well as make sure you choose the correct bank to finance the purchase. Make the wrong decision, and it can have repercussions that last for years. So how do you ensure that you make a wise choice?
As with most things in life, it pays to be prepared. If you’re considering any mortgage lender, you should thoroughly research them first. You’ll also need to choose if you want a bank or a credit union, and which bank or credit union you want to use. This all sounds somewhat complicated, but really, it’s only a matter of knowing what type of information you need to have to make an informed decision.
To educate yourself so that you make the best possible choice for your mortgage, you can start by asking the right questions. Here are five questions you can ask before choosing a bank or credit union for your mortgage:
What Kind of Down Payment Is Required?
No matter what bank or credit union you choose, you’ll need to make a down payment when purchasing your new home. Exactly what kind of down payment depends on the financial institution you settle on. It depends on a number of other factors as well; for example, the payments you want to make and the amount you plan to borrow.
Most organizations feature programs with an absolute minimum down payment of about 5 percent of the total cost of the purchase. On occasion, it’s possible to make a smaller down payment. If at all possible, however, you should try to make a larger down payment. Ideally, you’ll want to pay around 20 percent to avoid something called private mortgage insurance, or PMI.
A good financial institution will offer you plenty of information on the different types of down payments and how they’ll affect your mortgage plan moving forward.
Will I Need Private Mortgage Insurance? How Much Will It Cost?
If you do make a down payment of less than 20 percent of the cost of the home, most financial institutions will require private mortgage insurance. This is in case you default on the loan at any time in the future. You’ll want to do a little research on private insurance. If you’re considering a bank or credit union, find out how and when they’ll expect you to pay the PMI—and how much it will cost.
You’ll also want to find out if you’ll have to keep making these insurance payments throughout the lifetime of the loan. Many banks and credit unions will allow you to drop PMI payments completely once you have paid a certain amount of the value of your home. This isn’t a guarantee, however; make sure you find out what programs any bank or credit union you are considering has.
What About Mortgage Rates?
Of course, the down payment is only the beginning when it’s time to think about a mortgage. Equally, or perhaps more, important are the mortgage rates that your financial institution offers. This is where you really need to start weighing if it’s better to choose a credit union or bank.
Since credit unions are not-for-profit ventures, they are far less concerned about squeezing every dollar out of you when you take out a loan from them. While banks may have their advantages as well, the reality is that they’re ultimately in it to maximize their profits. What this means for you, the prospective home buyer, is that you are likely to get a much better deal on your mortgage rates if you choose a credit union.
How Is Your Credit?
Your credit score affects the loan that you can take out. Since a mortgage is just about the biggest loan you can go for, your credit score will have a dramatic effect on your ability to finance your new home. Don’t worry if your credit isn’t perfect, though; if you don’t have perfect credit, a good financial institution will still work with you.
This is another area where a good relationship with a credit union will come in handy. A massive, for-profit chain bank will likely have little interest in doing business with you if your credit isn’t pristine. On the other hand, a credit union will be more likely to work with you, as credit unions tend to place more value on individual customers, rather than the numbers. A credit union will also be more likely to offer a low- or middle-income loan.
When shopping around, consider looking for a credit union that offers some sort of program to assist first-time homebuyers. For example, InRoads Credit Union offers excellent first-time buyer programs, as well as access to home loan experts who can help you navigate the often complicated world of home financing.
What Sort of Fees Are There?
Any institution you choose to do business with will come with fees that you’ll have to pay. The fees you’ll be charged can be everything from monthly maintenance fees to online banking fees. Do a bit of research to discover what kind of fees the bank or credit union charges. While any financial institution will have fees, they don’t need to be exorbitant.
Often, prospective lenders won’t actually share any details about fees unless you specifically ask. So make sure you ask! Get as much information as possible before you agree to anything.
If a lender mentions that a fee exists, ask for clarification: Will you pay for the required credit report? How about the appraisal of the house you are looking to buy? Try to find out everything you can about potential fees, and avoid financial organizations that overcharge or that seem to be cagey about sharing information with you.