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Money Matters Blog for Cinfed Members

How (and why) to Shop for a Mortgage First

Posted on March 10, 2020
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How (and why) to Shop for a Mortgage First

By Dwayne Holt, Mortgage Lending Director

Spring inspires a fresh outlook on life — and our homes often reflect that. You might liven up your living space with a fresh coat of paint…renew your home with a renovation project…or make a fresh start by building or buying a new home!

Before you start your home search — armed with your list of “must-haves” and “nice-to-haves” — remember to do your mortgage homework. Getting pre-approved helps you get the best deal.



Why shop for a mortgage?

Many people find their dream home then find a lender. This can make you feel too rushed or excited to make sure you’ve got the best deal in the long run. It can mean paying higher rates or taking a loan that is too short, too long — or borrowing more than you can comfortably afford.

Shopping for the right mortgage can help you make sure you can buy your home and have enough money left in your budget to make your other dreams come true.



Know your home budget before you shop

Building, buying or renovating a home is one of life’s biggest investments. So big that the cost seems abstract. It’s hard to wrap your mind around how it fits into your monthly budget and lifestyle. This calculator helps you break down your income and expenses so you can see what you can comfortably afford.

This is one time in life when it’s good to stay in your comfort zone. You’ll be happier with your purchase when you know you can afford your home — and many of life’s other necessities, pleasures and surprises.

Once you know your budget, it’s time to shop for your mortgage. Being pre-approved for a loan before you make an offer keeps you in budget and eases the whole process.



What kind of mortgage do you need?

There’s no one “right” mortgage. It’s a good idea to do a little homework to see which kind of mortgage might be right for you.

  • First time home buyer: If you’re a first time home buyer, there are loans designed just for you. Just make sure you’re ready to make the move into homeownership. This cheat sheet explains terms and answers common questions for first time home buyers.

  • Short-term bridge loan: You might need a bridge loan to help during the transition of buying or building your new home and selling your last one. These short-term loans last up to 12 months.

  • Construction loan: If you’re building your home or embarking on a major renovation, you might look into a construction loan. These help you roll construction costs smoothly into your new mortgage once building is complete.

  • Refinancing and home equity loans: Maybe you want to make the most of your current home. Refinancing your existing mortgage might give you lower rates or different terms. This can offer you a little wiggle room in your wallet, extend your loan or help you pay off your home faster.

    A home equity line of credit uses the equity in your home to help you fund improvements (or other costs like education).



Understand what mortgage term and rates mean

After you settle on the type of mortgage or loan you need, it’s important to know how the terms and rates affect your plans.

Mortgage term: the length of your loan

Mortgage term means how many years until you pay off the loan. Mortgage terms can range between 5 and 30 years. Most members choose a 15- or 30-year mortgage. Generally, the shorter your term, the lower your interest rate.

For example, a 15-year mortgage may have an interest rate as low as 3.25%. A 30-year mortgage for the same amount may have an interest rate of 3.5%. That doesn’t sound like a big difference, but that small percentage could save you tens of thousands of dollars over the life of the mortgage.

Mortgage amount

Mortgage term

Annual percentage rate (APR)

Total cost of mortgage

$200,000

15 years

3.25%

$252,961

$200,000

30 years

3.5%

$323,312


More than interest rate: understand fixed and adjustable-rate mortgages (ARM)

Of course you want the lowest interest rate available on your mortgage. The rates offered to you have a lot to do with your credit score. But interest rates also vary with fixed-rate (also called conventional rate) and adjustable rate-mortgages (ARM).

  • A fixed-rate or conventional mortgage offers consistency because the interest rate stays the same throughout the life of the loan. It’s a great option when:

    • You want a longer-term loan (15 to 30 years)

    • When you buy when interest rates are low

  • An adjustable-rate mortgage means your interest rate varies during the life of the loan. It’s set at a fixed rate for a certain amount of time. Then your interest rate is adjusted periodically per the index value at that time. This is a great option when:

    • You buy when interest rates are high and are likely to fall

    • You will sell your home in just a few years

Learn more about fixed-rate vs. adjustable-rate mortgages.


Before you make your next move

Whether you’re moving or remodeling, it’s a big investment. Visit your local Cinfed branch to learn more about the different mortgage and loan types, terms and rates — and which one might be right for you. You can also take a quick online mortgage class.





CONTACT CINFED

Cinfed Credit Union
4801 Kennedy Avenue
Cincinnati, OH 45209
(513) 333-3800
Routing #242076656

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