How do I compare loans?

Comparing mortgage loans can be tricky because there are so many different types available. And it seems there are just as many lenders as there are loans.

There are several factors to consider when comparing loans of which the most important are:

  • Interest rate
  • Down payment required
  • Points
  • Loan-related fees (things like recording and transfer chargers, and title and escrow charges)
  • Pre-payment penalties
  • Conversion options (like converting an ARM to a fixed-rate mortgage)

You'll also want to investigate the requirements for qualifying for each loan. Requirements usually include:

  • Cash and credit reserve requirements
  • Credit score limits
  • Loan-to-value ratios

The final thing you'll want to know is the lock-in period. This is the period during which you'll be guaranteed the rate and points quoted for the loan. We cover rate locks in another portion of our mortgage guide. We suggest you read through it if you're unsure of what they are and how they work.

If you're comparing lenders as well, be sure you compare apples to apples. In other words, don't compare a 30-year fixed mortgage from one lender with a 15-year ARM from another.

This process will be quicker and easier if you have a clear picture of your finances. Decide ahead of time how much of a down payment you can make, and what kind of monthly payment fits your budget. That will help you easily eliminate loans and lenders that don't fit with your needs and what you're able and willing to do financially.