If you are shopping for a house and a home loans to go with it, then you are probably fully aware that the first step in the process would be to compare these home loans. The process can seem daunting, especially if you are a first-time homebuyer. However, you can rest assured that as long as you break it down into steps, you will be able to handle it just like a pro. Take a look at the following considerations:
Analyze the loan term in years
First of all, when we say that we are comparing home loans, what we are actually doing is comparing the loan TERMS. Moreover, there are several ways to do this, with the first option being to take a look at the home loan term on a year-to-year basis.
When you are doing this, you will first have to look at what terms are favorable to you. Many people will opt for a shorter loan term even though the payments will be higher. However, the good thing about a shorter note is that you will not pay as much in interest over the long term.
Keep the interest rate or APR in mind as well
Your interest rate or APR will tremendously factor in with what kind of payment you are required to make. There are a few loan types where comparing interest rates would be appropriate, but for the most part, factoring in the APR is a better way to go about it. The APR will consider such things as points and origination fees. Moreover, lenders are required to tell you what the APR is for your mortgage. Unfortunately, if you have a variable rate loan, you should realize that there often is no easy way to compare the interest rates. People will often simply think about whether they are comfortable with the monthly payment and go from there.
Keep the balloon payment (if any) in mind
If you have a loan with a term that is shorter than the amortization term, then chances are you have a loan that will have a balloon payment due. This would essentially be the remaining money owed all at once, and you could either refinance or pay off the loan completely if you have the available funds.
Finally, keep the monthly payments in mind
Finally, the last thing you need to keep in mind would be the monthly payments so you will know the exact amount that you would be paying each month. According to the experts at SoFi Invest, “Set a budget that includes an interest rate and monthly payments you can afford.” There are some loans with variable interest rates or balloon payments that would provide a lower monthly payment than other loans; you definitely have to keep in mind that balloon payment is coming up. Make sure that you are not getting in over your head. If even going with an interest-only payment is causing you a financial pinch, then it might be time to reevaluate just what type of home loan you could afford. Take the loan with the lowest APR or interest rate if you can afford the monthly payment.
So, how do you compare home loans? First and foremost, by keeping these factors in mind as much as possible.