10 Facts You Should Know about Mortgages

Choosing the best mortgage is not as easy as it should be. A lot of the information out there is confusing and misleading.

To make things a bit easier, here's our list of ten things you need to know when shopping for a mortgage:

1. Fixed-rate is the way to go
   Shop for 15- and 30-year fixed-rate mortgages A loan with a set interest rate throughout the life of the loan regardless of whether rates go up or down. – they are the safest and most popular. Stay away from adjustable rate mortgages.
   
   
2. Look into an FHA loan
   Anyone with a small down payment or low credit score should look at a FHA loan. Best of all, they're backed directly by the government.
   
   
3. If you're eligible for a VA loan, get one
   VA loans A special type of loan backed by the government and only available to veterans of the US military and surviving relatives. have the best rates and terms. Don't bother looking for something better – you won't find it. Veterans and their surviving spouses are eligible.
   
   
4. Check your score
   Contest bogus penalties, close unnecessary accounts and keep your balances below 1/3 of the limit on your credit cards. Don't listen to anyone who tells you that checking your score will hurt you, they're wrong.
   
   
5. 720 is the new 680
   A credit score of 680 or higher used to get you a low rate, but not any more. To get a preferred rate today, you need a credit score A measure of how likely a borrower is to default on a loan. of 720.
   
   
6. Don't borrow more than 80% of the sales price
   If you do, you'll need to get private mortgage insurance This insurance protects the mortgage lender against loss if a borrower defaults their loan. Borrowers with a down-payment less than 20% are required to purchase mortgage insurance. . Sometimes you can get two loans, one for 80% and the second for the rest, but that's harder today than it was before 2008.
   
   
7. Get a conforming loan
   Conforming loans Any type of mortgage loan that adheres to loan amount limits set by the government-sponsored institutions Fannie Mae or Freddie Mac. get you better rates and pricing if your loan conforms to the limits set by the government.
   
   
8. If you use a mortgage broker, ask how they get paid
   Brokers A middle man between borrowers and banks who shops around to find a borrower the best loan. typically charge 1% of the loan amount. Ask about the yield spread premium The amount a lender pays a mortgage broker to sell his borrowers a loan with a higher rate. (YSPs) and make sure you're getting the rebate from the lender.
   
   
9. There's no such thing as a "no-cost" mortgage
   Lenders only give rebates when you take a higher rate. They may offer to pay your closing costs, but they'll just take them out of your rebate.
   
   
10. Your down payment is equity
    Put extra money towards your down payment The amount of money a buyer pays in cash at closing to fund a home purchase, usually expressed as a percentage of the total home price. . When you sell, you won't get back any money used to buy down the rate.

For more information on mortgages and getting pre-approved, check out:

• Getting A Mortgage – find out what's involved with getting a mortgage
• Getting Pre-Approved – learn why you should get pre-approved & how to do it
• Redfin's Mortgage Forums - get answers to your mortgage-related questions

• Comments on what it's like getting a mortgage in today's market
• Two explanations of how multiple credit inquiries within 30 days won't negatively affect your credit score
• Hear from both sides of the debate whether to use a mortgage broker or a direct lender
• Discussion of closing costs and yield spread premiums (YSPs)
• Calculating Freddie Mac's debt-to-housing gap

• Mortgage-related resources from the U.S. government's Office of Federal Housing Enterprise Oversight
• The benefits and myths of getting an FHA loan
• The websites for Fannie Mae and Freddie Mac
• FAQs about the VA Home Loan program
• A blog post by Redfin's CEO Glenn Kelman on whether or not you should use mortgage broker