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 required 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 a home loan closing are listed on the Mortgage Shopping
Worksheet in this brochure.
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 and Insurance or Mortgages,
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.
