Shopping
around for a home loan or mortgage will help you to get the best financing
deal. A mortgage— whether it’s a home purchase, a refinancing, or a home equity
loan—is a product, just like a car, so the price and terms may be negotiable.
You’ll want to compare all the costs involved in obtaining a mortgage.
Shopping, comparing, and negotiating may save you thousands of dollars.
Obtain
Information from Several Lenders
Home
loans are available from several types of lenders—thrift institutions, commercial banks, mortgage companies, and
credit unions. Different lenders may quote you different prices, so you should
contact several lenders to make sure you’re getting the best price. You can
also get a home loan through a mortgage broker. Brokers arrange transactions
rather than lending money directly; in other words, they find a lender for you.
A broker’s access to several lenders can mean a wider selection of loan
products and terms from which you can choose. Brokers will generally contact several lenders regarding your
application, but they are not obligated to find the best deal for you unless they
have contracted with you to act as your agent. Consequently, you should consider
contacting more than one broker, just as you should with banks or thrift
institutions.
Whether
you are dealing with a lender or a broker may not always be clear. Some financial
institutions operate as both lenders and brokers. And most brokers’
advertisements do not use the word “broker.” Therefore, be sure to ask whether
a broker is involved. This information is important because brokers are usually
paid a fee for their services that may be separate from and in addition to the
lender’s origination or other fees. A broker’s compensation may be in the form
of “points” paid at closing or as an add-on to your interest rate, or both. You
should ask each broker you work with how he or she will be compensated so that
you can compare the different fees. Be prepared to negotiate with the brokers as
well as the lenders.
Obtain
All Important Cost Information
Be
sure to get information about mortgages from several lenders or brokers. Know
how much of a down payment you can afford, and find out all the costs involved
in the loan. Knowing just the amount of the monthly payment or the interest
rate is not enough. Ask for information about the same loan amount, loan term,
and type of loan so that you can compare the information. The following
information is important to get from each lender and broker:
Rates
·
Ask
each lender and broker for a list of its current mortgage interest rates and
whether the rates being quoted are the lowest for that day or week.
·
Ask
whether the rate is fixed or adjustable. Keep in mind that when interest rates
for adjustable-rate loans go up, generally so does the monthly payment.
· If
the rate quoted is for an adjustable-rate loan, ask how your rate and loan
payment will vary, including whether your loan payment will be reduced when
rates go down.
·
Ask
about the loan’s annual percentage rate (APR). The APR takes into account not
only the interest rate but also points, broker fees, and certain other credit
charges that you may be require to pay, expressed as a yearly rate.
Points
Points
are fees paid to the lender or broker for the loan and are often linked to the interest
rate; usually the more points you pay, the lower the rate.
·
Check
your local newspaper for information about rates and points currently being
offered.
·
Ask
for points to be quoted to you as a dollar amount—rather than just as the
number of points—so that you will actually know how much you will have to pay.
Fees
A
home loan often involves many fees, such as loan origination or underwriting fees,
broker fees, and transaction, settlement, and closing costs. Every lender or
broker should be able to give you an estimate of its fees. Many of these fees
are negotiable.
Some
fees are paid when you apply for a loan (such as application and appraisal
fees), and others are paid at closing. In some cases, you can borrow the money
needed to pay these fees, but doing so will increase your loan amount and total
costs. “No cost” loans are sometimes available, but they usually involve higher
rates.
·
Ask
what each fee includes. Several items may be lumped into one fee.
·
Ask
for an explanation of any fee you do not understand. Some common fees
associated with home loan closing are listed on the Mortgage Shopping Worksheet.
Down
Payments and Private Mortgage Insurance Some lenders require 20 percent of the
home’s purchase price as a down payment. However, many lenders now offer loans
that require less than 20 percent down—sometimes as little as 5 percent on
conventional loans. If a 20 percent down payment is not made, lenders usually
require the home buyer to purchase private mortgage insurance (PMI) to protect the
lender in case the home buyer fails to pay. When government-assisted programs
such as FHA (Federal Housing Administration), VA (Veterans Administration), or
Rural Development Services are available, the down payment requirements may be
substantially smaller.
·
Ask
about the lender’s requirements for a down payment, including what you need to
do to verify that funds for your down payment are available.
·
Ask
your lender about special programs it may offer. If PMI is required for your
loan,
·
Ask
what the total cost of the insurance will be.
·
Ask
how much your monthly payment will be when including the PMI premium.
·
Ask
how long you will be required to carry PMI.
Obtain
the Best Deal
That
you can once you know what each lender has to offer, negotiate for the best
deal that you can. On any given day, lenders and brokers may offer different
prices for the same loan terms to different consumers, even if those consumers have
the same loan qualifications. The most likely reason for this difference in price
is that loan officers and brokers are often allowed to keep some or all of this
difference as extra compensation.
Generally,
the difference between the lowest available price for a loan product and any higher
price that the borrower agrees to pay is an overage. When overages occur, they
are built into the prices quoted to consumers.
They
can occur in both fixed and variable-rate loans and can be in the form of
points, fees, or the interest rate. Whether quoted to you by a loan officer or
a broker, the price of any loan may contain overages. Have the lender or broker
write down all the costs associated with the loan. Then ask if the lender or
broker will waive or reduce one or more of its fees or agree to a lower rate or
fewer points. You’ll want to make sure that the lender or broker is not
agreeing to lower one fee while raising another or to lower the rate while
raising points. There’s no harm in asking lenders or brokers if they can give
better terms than the original ones they quoted or than those you have found
elsewhere. Once you are satisfied with the terms you have negotiated, you may
want to obtain a written lock-in from the lender or broker. The lock-in should include
the rate that you have agreed upon, the period the lock-in lasts, and the number
of points to be paid. A fee may be charged for locking in the loan rate. This
fee may be refundable at closing. Lock-ins can protect you from rate increases
while your loan is being processed; if rates fall, however, you could end up
with a less favorable rate. Should that happen, try to negotiate a compromise
with the lender or broker.
Remember:
Shop, Compare, Negotiate
When
buying a home, remember to shop around, to compare costs and terms, and to
negotiate for the best deal. Your local newspaper and the Internet are good
places to start shopping for a loan. You can usually find information both on
interest rates and on points for several lenders.
Since
rates and points can change daily, you’ll want to check your newspaper often
when shopping for a home loan. But the newspaper does not list the fees, so be
sure to ask the lenders about them. Don’t
be afraid to make lenders and brokers compete with each other for your business
by letting them know that you are shopping for the best deal.
Fair
Lending Is Required by Law
The
Equal Credit Opportunity Act prohibits lenders from discriminating against credit
applicants in any aspect of a credit transaction on the basis of race, color,
religion, national origin, sex, marital status, age, whether all or part of the
applicant’s income comes from a public assistance program, or whether the
applicant has in good faith exercised a right under the Consumer Credit Protection Act.
The
Fair Housing Act prohibits discrimination in residential real estate transactions
on the basis of race, color, religion, sex, handicap, familial status, or
national origin.
Under
these laws, a consumer cannot be refused a loan based on these characteristics
nor be charged more for a loan or offered less favorable terms based on such
characteristics.
Credit
Problems? Still Shop, Compare, and Negotiate
Don’t
assume that minor credit problems or difficulties stemming from unique
circumstances, such as illness or temporary loss of income, will limit your
loan choices to only high-cost lenders.
If
your credit report contains negative information that is accurate, but there are
good reasons for trusting you to repay a loan, be sure to explain your situation
to the lender or broker. If your credit problems cannot be explained, you will
probably have to pay more than borrowers who have good credit histories. But
don’t assume that the only way to get credit is to pay a high price. Ask how
your past credit history affects the price of your loan and what you would need
to do to get a better price. Take the time to shop around and negotiate the
best deal that you can.
Whether
you have credit problems or not, it’s a good idea to review your credit report
for accuracy and completeness before you apply for a loan.
To
order a copy of your credit report, just one click http://www.extramortgages.com/category/mortgage-broker/