There are at least 3 things more important than the home loan interest rate you get. Shopping for a lender based only on rate will mean likely missing them.
Home buyers often mistake interest rate as the only important part of a home loan. It’s not. There are many factors to consider when buying a home that might be more important than the interest rate.
Everybody thinks they can shop around for the best rate, and they’ll get the best home loan. This is like shopping for the best tires to find the best car. The interest rate is only part of the picture. Let’s look at four other really important parts of your home loan.
Total monthly payment
Your total monthly payment is more important than your home loan interest rate. See, interest is just a part of what you’ll pay each month. Consider principle, taxes, insurance, and any homeowners association dues. Also consider the length of your loan, and whether you roll closing costs into it. The total amount that comes out of your living expenses each month is what matters most. Since a home is likely the biggest purchase of your life, it’s important that it fits into your monthly cash flow. This bigger perspective, and a strategy to make your monthly payments fit your life, is more important than just the interest rate.
The amount of down payment you choose is a really important consideration. More down payment can lower your interest rate, but there may be more important things to do with your money than just lower your rate.
Important things like an Emergency fund.
Having some money saved for emergencies is more important than a lower interest rate. What if, in trying to lower your interest rate, you deplete your savings to make a bigger down payment. With your savings empty, you’re now without an emergency fund, which could really come back to bite you. In this way, simply chasing the lower rate isn’t the smartest path. It’s a smarter move to leave yourself enough savings in case something breaks in the house, or your car breaks down, or you have unexpected medical bills. Don’t sacrifice your emergency fund to lower your interest rate. Put less down and take a higher interest rate, if it means keeping something in savings.
If you’ve got enough saved, you might be tempted to make a very large down payment to get a lower interest rate. But there are other ways to invest your money that might be better. What if you instead invested in the stock market and earned the historical average 10% return? Or what if you made smaller down payments on 2 properties instead of a large down payment on one? Sure, your interest rates on the 2 homes would be higher, but now you’d have a second home to rent out as an investment property, creating passive income and positive cash flow.
What else matters more than your home loan interest rate? The quality of your lender. But aren’t all lenders pretty much the same? No. Not at all. The proficiency and reputation of lenders varies widely, and matter a lot. How well they do their job, and their reputation for doing it, can mean the difference between getting your dream home and losing it. Picture this, you make an offer on a home in a hot market, and the seller’s real estate agent notices you’re using a lender that often can’t fund loans on time, or lacks the loan types to fit many borrowers. So the agent advices the seller to accept someone else’s offer. You’ve just lost your chance at that home. Or what if they did accept your offer, only to have you miss your deadlines because your low rate lender couldn’t deliver? Definitely consider the quality of your lender, not just the rate they’re offering.
Your home purchase means a lot. We’re here to make that purchase as smooth as possible.