Trying to compare loans, their fees, and which one really makes sense for you can be a job in itself. Smart shoppers compare different interest rates, but how do you know you are getting the best deal that you can? Interest rates are important but there are terms of the loan that must be considered. Is the loan a fixed rate so that the loan payment will remain the same for the next 30 years? Is it a loan that expires in 2,3,or 7 years or is it a fixed payment for a period of time and then the payment adjusts with the changing interest rate? Some loans actually will allow you to pay smaller amounts per month, however this could cause problems when selling your home. You could owe more that you borrowed. In other words you may have to come out of pocket or you may not be able to sell your home. This is because there isn’t enough equity in the house to pay the fees associated in a home sale. Comparing mortgages can save you $1000’s. A free resource can be found at the end of this article. It will allow you to compare loans, their terms, and easily determine which loan is saving you more money.
When shopping for a mortgage you must not only consider the loan and it’s terms. You must consider the loan officer and their business practices. Does the loan officer give you a direct phone number to reach him/her? Does that loan officer call you back during the process of shopping for a loan? Having direct access will improve your chances to get the loan you are applying for, especially if the loan officer knows you’ll be calling. It makes them more accountable. Talk to at least 3 or 4 loan officers during a 14 day period. During this 14 day period you can have as many loan officers pull your credit (only for home buying in this case) and it will only be considered 1 inquiry on your credit report. Remember it is not a good practice to keep pulling your credit outside this 14 day period because it can plummet your credit score. Pick two loan officers and compare what they have to say about the loan that is right for you.
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 have 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
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
The Easy Loan Compare Guide that offers easy instructions and will help you determine which loan is right for you. Take it with you when you speak to each lender or broker and write down the information you obtain. 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.