Compare home loans: The complete guide to mortgages

The buying process doesn’t stop once you’ve found your dream home or investment property. Finding the right loan is key.Mortgages comparison

If you’re a homeowner, chances are that your mortgage is the largest sums of money you’ll ever borrow. On the plus side, your mortgage will eventually give you full ownership of a home and all the benefits that come with it.

Taking out a mortgage isn’t something you should rush into. Take the time to find out about how they work, the types of loans that are offered, the rates available to you and how to compare them. Taking out the right loan can save you big in the long run.

Compare home loans

Rates last updated December 11th, 2017
Details Features
First Internet Bank Mortgage
First Internet Bank Mortgage
  • Rates as low as 3.356%
  • FHA, VA, HARP & HELOC
For great mortgage interest rates and service, you’ve come to the right place. Go to site More info
LendingTree Mortgage
LendingTree Mortgage
  • Rates as low as 3.709%
  • Get matched with lenders online
Connect with vetted lenders on mortgages in a fast online process. Go to site More info
loanDepot Mortgage
loanDepot Mortgage
  • Rates as low as 3.125%
  • Licensed in all 50 states
Easy application and good customer service, but beware of fees up to 5% Go to site More info
Quicken Loans Mortgage
Quicken Loans Mortgage
  • Rates as low as 4.625%
  • Buy a home with as little as 3% down

Fast online approvals and flexible loans make it easy to purchase a home.

Go to site More info
Rocket Mortgage
Rocket Mortgage
  • Rates as low as 4.033%
  • FHA, VA, jumbo and more
Get approved fast without all the hassle and paperwork. Go to site More info

What is a mortgage?

When you want to buy a home or investment property, you take out a loan called a mortgage. You borrow money from a lender who charges a fee — known as interest — which is rolled into your monthly payments.

The lender considers your property collateral — or security for the loan. This means if you can’t make your payments, the lender can repossess your property and sell it to recoup the loss.

How does a mortgage work?

If you’ve never purchased a house and gone through the complicated mortgage lending process, the terms and process of applying can be daunting. Here’s a basic explanation of how a mortgage works.

Retail and wholesale lenders

Mortgages are offered by either retail or wholesale lenders

  • Retail lenders are banks such as Citi, JPMorgan Chase, Bank of America, Wells Fargo and U.S. Bank. You can apply directly with these banks for a mortgage.

Retail lenders diagram

  • Wholesale lenders allow their loans to be offered through third-party lenders such as mutual or building societies and credit unions.

Wholesale lenders diagram

  • Sometimes the lender funds loans with their own money and are known as portfolio loans. Lenders set their own requirements and loan terms.
  • Most of the time mortgages are funded by borrowed money known as mortgage bankers. This means the loan is funded by borrowed money, and then sold to investors on the secondary mortgage market.
  • When you apply for a loan, lenders assess your risk by considering your credit score, down payment, assets, debt and income. Your risk will determine if you get the loan and what your interest rates will be.
  • The amount you actually owe is the principal. In exchange for lending you this money, your bank will charge interest.
  • Your interest rate is applied to your principal each month and your loan will amortize over time.
What is amortization?

When you take out a mortgage, you’re agreeing to pay the principal and interest over the life of the loan. Because the interest rates are applied to the balance, as you pay down your balance, the amount you pay in interest changes. This means that at the beginning of your loan a big percentage of your payment will be applied to interest. With each subsequent payment, you’ll pay more towards your balance.

For example, on a 30-year $400,000 mortgage at 4.5% interest, the first payment of $2,027 allocates $1,500 to interest and only $527 to the principal. By the time you make your last payment, you’ll only pay $8 in interest and $2,019 to the balance.

What about interest-only loans?

In cases where you only wanted to pay the principal of a loan — usually if you’re keeping a property for a short amount of time — choose an interest-only loan. Once the principal is eliminated from your monthly payment, you’ll pay less monthly, but it won’t reduce your loan amount. Interest-only loans aren’t generally bought by Fannie Mae or Freddie Mac on the secondary market and usually require a good credit score.

Back to top

What’s the best mortgage rate for me?

When you’re choosing a mortgage there are two main kinds of rates out there. Fixed-rate mortgages give you a predictable payment each month, while adjustable-rate mortgages can change with the market.

Fixed-rate mortgages

Fixed rate graph

Most people opt for fixed-rate mortgages. This allows you to lock in a rate for 10, 15, 20, 25 or 30 years. During this time, your rate and payments won’t change, giving you the security of mortgage payments that won’t fluctuate.

Who is best suited to this type of loan?

  • Those with a solid budget. Your payments won’t change for the life of the loan, meaning you can rest easy knowing exactly how much you’ll pay each month.

Read more about fixed rate mortgages

Adjustable rate mortgages (ARM)

ARM graph

An ARM is a mortgage with an interest rate that changes with the market. So, over the course of your loan, your payments can rise or fall depending on what the market looks like. This is risky — though there is a chance that the rates will go down, they could rise to an amount you can’t afford.

Another option is the hybrid-ARM. You’re given an initial fixed period (usually five, seven or 10 years), when your rates won’t change. Once this fixed period ends, your rate is adjusted to match market conditions — raising or lowering your monthly payment.

You do get some security — usually lenders will cap the amount the rate can go up or down at each adjustment period, and over the life of the loan. But be aware that your rate could jump significantly during adjustment periods, so be 100% certain that you can afford the worst-case scenario.

Who is best suited to this type of loan?
  • If you’re planning to sell your home before the fixed period ends. This means you’ll be able to enjoy a lower rate for the initial fixed rate years and then sell after.
  • If you can afford the worst-case scenario. If you choose to keep the loan once the initial fixed rate period ends, there’s always the possibility that rates can drop lower during the adjustable period, depending on market conditions. But they can also be raised higher than you can afford. Be sure you can afford your repayments at the highest interest rate.

Read more about ARMs

Back to top

What types of mortgages are available?Dream home image

Conventional loans

These are regular mortgage loans that are not part of any government loan programs like VA or FHA loans. These loans often come with lower interest rates and lower fees, but they need to meet standards set by the government sponsored agencies, Fannie Mae and Freddie Mac.

Your conventional loan can either be conforming or nonconforming.

What does that mean?

Simply speaking, conforming loans need to meet the standards set by Fannie Mae and Freddie Mac — agencies who buy your mortgages. These standards include loan maximums, credit qualifications and down payments and limited debt-to-income ratio.

Fannie Mae and Freddie Mac banner

Who is best suited to this type of loan?
  • Most popular mortgage. About 60% of people who apply for mortgages get a conventional loan.
  • If you’re buying a residential, second home or rental property.

Nonconforming loans are loans that are over the limit are considered jumbo loans. Because these tend to be a higher risk for the lender, they come with high interest rates, require a higher down payment and look closely at your credit before you can qualify.

Who is best suited to this type of loan?
  • You’re planning on buying a commercial property. Commercial property usually involves loans for more than the maximum limits.
  • If you have poor credit. Nonconforming loans can help if you have trouble qualifying for a conforming loan. Usually comes with higher rates.

FHA loans

FHA mortgages logo

This type of loan is insured by the Federal Housing Administration (FHA), and allows borrowers to purchase a property with a lower down payment and with less-than-stellar credit scores. FHA loans have a number of other eligibility requirements, particularly around your employment history and debt ratio, so be sure to do your research before applying for one.

Who is best suited to this type of loan?
  • If you can’t put a 20% down payment. FHA will accept as low as 3.5% down on your new home.
  • Low to moderate income. If you’re credit or income wouldn’t qualify you for a conventional loan.

Find out more about FHA loans

VA loans

VA mortgages logo

If you or a family member has served in the military, a Veterans Affairs (VA) mortgage can be a great way to buy a home. You’ll see benefits like no down payment or mortgage insurance required, low interest rates and no prepayment fees.

Who is best suited to this type of loan?
  • Have served in the military. VA loans require that you or a spouse has served between 90 and 181 days in active service or over six years in the Reserves or National Guard.
  • Spouse has fallen in the line of duty.

Find out more about VA mortgages

USDA loan

USDA mortgages logo

This is a loan from the US Department of Agriculture for low to medium income borrowers who want to buy in rural areas. USDA loans don’t require a down payment, but still requires private mortgage insurance (PMI).

Who is best suited to this type of loan?
  • Low income buyer. USDA focuses on families that fall at or below the poverty level for their area, are are in need of clean and safe homes, and are unable to get loans anywhere else.
  • Acceptable debt-to-income ratio. Your complete mortgage — including interest, PMI and taxes must be 29% or less of your income.

State and local programs

Many states and cities offer programs to help Americans buy a home. They often target those with low income, minority groups, among other things. So be sure you talk with a housing counselor in your local area to see what’s available.

Back to top

How can I compare mortgages?

  • Decide on a loan type.Is a fixed or adjustable rate mortgage is best for your plans and budget. Get your credit in order and find out what loans are available to you. score.
  • Shop for different loans. Compare banks and lenders based on your loan type and how much you can put for a down payment.
    • Use the APR. This includes some of the fees of your loan and can be a more accurate way to compare loans.
    • Find out about rate locks. Once you find a good rate, you want to lock it in until you settle on your home. You don’t want it to go up during the application process.
    • Be mindful of prepayment penalties. If you intend on moving out of your home before your loan limit is up, make sure that your loan doesn’t include prepayment penalties.
  • Ask for a loan estimate. By law, lenders must give you a loan estimate. This three-page document shows you the interest rates, repayments, closing costs and even a section on the last page that gives you the key figures to use when comparing.
  • Repeat until you find a loan you want. It’s normal to ask for loan estimates from more than one lender until you find a loan you’re happy with.Mortgage comparison processBack to top

How can I get the best rate on my mortgage?

  • Compare multiple lenders. Always get more than one quote when looking for a mortgage. You’ll get options from different types of lenders.
  • Get your credit score in order. A credit score above 740 can open the door to more competitive interest rates, lower down payments and other loans — even special government program loans such as FHA and VA loans.
  • Consider paying for points. Discount points are upfront charges you can pay to reduce the interest rates on your loan. See if paying for points will be beneficial to your total cost in the long run, especially if you don’t plan on keeping your home for a long time.
  • Qualify for special programs. There are a variety of government, state and local programs that may offer competitive rates and terms.
  • Save a larger down payment. The bigger your down payment, the lower your interest rates.
  • Lower your debt-to-income ratio (DTI). Your total debt load will affect which loans you qualify for. It’s a good idea to pay off and close any credit cards or loans you don’t need when you’re shopping for the best rate.
Back to top

From start to finish what fees will I pay on a mortgage?

Mortgage fees application

On average, you’ll pay 2% to 5% of the purchase price of a property in closing costs. Once you pick your lender and mortgage, ask for a loan estimate (previously known as a good faith estimate or GFE). This includes a full list of all the closing costs you’ll be expected to pay. You’ll also pay for:

  • Credit report fee: $30–$40. Your lender will want to know your financial history to get an idea of your risk.
  • Appraisal fee: $300–$500. This proves that your property is worth the sale price. It protects the lender if it needs to sell your property and recoup the costs.
  • Origination fee: 0.5%–1% of loan amount. This fee is for processing your loan application.
  • Title insurance fee: $1,000–$5,000. At the time of closing, you’ll pay for title insurance that comes in two forms — the lender’s and owners. The lenders title protects the lender while the owners title protects you.
  • Title search fee: $75–$100. This determines whether or not a seller has the right to sell a property to a buyer.
  • Survey fee about: $350. In some states, a survey of the property is required to ensure property lines and boundaries are correct.
  • Closing fee: 2%–5%. You’ll pay this fee to the attorney or company handling your closing.
  • Private mortgage insurance (PMI): 0.5%–1% of loan. If you have a down payment of less than 20% of the purchase price, you’re required to pay PMI each month.
  • Inspection fees: $200–$400. Home and pest inspections will uncover any nasty hidden surprises within your new home.
  • Homeowners insurance depends on your state $300–$3,000. Your lender will usually require that you take out homeowners and possibly flood insurance to be paid monthly.
  • Points: 1% or the loan. Paying for discount points can reduce your interest rate, saving you money on your monthly payments. This is an optional cost and one you should consider the merits of before paying.

In addition, you may also pay attorney and postal fees.

How to apply for a mortgage

  1. Find a lender. Decide on a lender and loan you’re comfortable with.
  2. Start the application process. You fill out the Fannie Mae Form 1003 that includes all the information that a lender needs to asses your risk. Your loan is then reviewed by a loan officer before you sign it.
  3. Review. Your house is appraised and inspected to make sure it meets all standards set by the lender. At this point your application is reviewed by an underwriter and your credit report is examined.
  4. Loan estimate. You’ll receive your loan estimate for review and signature.
  5. Closing. before you closing meeting you’ll receive your closing disclosure that will show you all the fees and costs you’ll pay. And finally you’ll sign all remaining documents and get the keys to your new home.

Who’s involved in the purchase of your home?

Mortgage application

When applying for a loan:

  • Loan officer. This will be the person to help you find a loan, and to assist with the application process. They’ll keep you updated on the progress and be there to answer any questions.
  • Loan processor. Once you’re ready to apply, the loan processor will collect the required documents from you to support your application and will check the necessary calculations for your loan.
  • Mortgage underwriter. They give the final say on if your application is approved or rejected after fully evaluating it.
  • Closing representative. This person oversees and holds the closing meeting and the transferring of funds between parties.

When buying a property:

  • Real estate agent. A good real estate agent will be your point of contact to find a home and help you negotiate with the seller to get the best price.
  • Real estate appraiser. You’ll need to get the property appraised for your lender to find the true value of the home.
  • Home inspector. You’re not required to get a home inspection, but it’s recommended. If there is anything wrong with the home, you can ask them to fix it, or lower your costs. Inspectors are trained to assess property to find any structural or safety issues.
  • Pest inspector. They look at your property for pests like termites that can destroy your home over time.

What is a loan estimate?

Lenders and brokers are required by law to give you a loan estimate. This gives you an estimate of the cost you’ll pay at closing. It will show information like:

  • The interest rate.
  • A breakdown of the closing costs.
  • An estimation of the tax and insurance costs.
  • An estimate of your monthly payments.

You should get a loan estimate within three days of getting your loan application. One you get a loan estimate, you are not required to use that lender. Use this tool to compare lenders and find one that gives you the best rates.

Loan-Estimate-part-1

Source: consumerfinance.gov

What’s a closing disclosure?

You’ll receive a closing disclosure at least three business days before closing. It lists all the important information about your mortgage, including:

  • Your loan terms, such as how long you’ve fixed your loan for.
  • What your monthly payments will be.
  • The closing costs of your mortgage.

If you’re applying for a reverse mortgage, you’ll receive a HUD-1 and a truth-in-lending disclosure instead of a closing disclosure.

Closing-Disclosure

Source: consumerfinance.gov


Bottom line

Buying a house is likely one of biggest investments you’ll ever make. Don’t go into the process blind — do your research and understand the bundles and papers and jargon before you sign.


Images: ShutterStock

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and our Privacy Policy.

6 Responses

  1. Default Gravatar
    hhess8May 28, 2017

    I just started a new job and I’m looking to buy a house that is going to hit the market. The lady has agreed to hold off on posting it to the market until I can find out if I can get approved or not.

    • Staff
      LiezlJuly 29, 2017Staff

      Hi Hhess8,

      Thanks for reaching out.

      It’s good to know that the owner has accommodated your request. Since time is of the essence with your deal with the owner, you may enlist the services of a mortgage broker who will assess your needs and help you find a suitable home loan. This may save you time and effort in finding the right lender as they have access to a range of home loans from a variety of banks and lenders.

      Kind regards,
      Liezl

  2. Default Gravatar
    BrendaFebruary 17, 2017

    My husband and I are looking to buy a home and I work a full time job but my husband is self employed who gets 1099 and paystubs monthly. However when we file taxes each year, we have a lot of deductibles which leaves very little income to show. We make enough money, but banks won’t approve us. How can we do a low doc and how does that work

    • Default Gravatar
      MarkJuly 31, 2017

      My husband and I are looking to buy a home and I work a full time job but my husband is self employed who gets 1099 and paystubs monthly. However when we file taxes each year, we have a lot of deductibles which leaves very little income to show. We make enough money, but banks won’t approve us. How can we do a low doc and how does that work

      Reply

    • Staff
      HaroldJuly 31, 2017Staff

      Hi Mark,

      Thank you for your inquiry.

      While we are a financial comparison website and general information service we are not mortgage experts and don’t offer any of the products or services on our website. You can compare a range of loans in the market, alternatively you can reach out to a mortgage broker who will take all your circumstances into account and offer you a range of lending options.

      I hope this information has helped.

      Cheers,
      Harold

    • Default Gravatar
      JonathanJuly 29, 2017

      Hello Brenda,

      Thank you for your inquiry.

      Low doc home loans are types of loans offered as a way of meeting the requirements of small business owners. They are designed for self-employed people who otherwise wouldn’t be able to get a home loan due to their inability to show how much they earn using traditional methods. Generally, the eligibility requirements from lender to lender will differ, but in most cases you’ll be required to have a proof of your business and to supply the self-certification of your income plus good credit history. You would still need to prepare some deposit just like a regular home loan does.

      It is also of worth to check other options such as joint application, or FHA mortgages.

      Hope this helps.

      Cheers,
      Jonathan