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This FREE
article includes information about:
Shop,
Compare, Negotiate:
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,
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.
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, contact:
Equifax: (800) 685-1111
TransUnion: (800) 916-8800
Experian: (888) EXPERIAN (397-3742)
Free Credit Report - Click
Here.
You Can Get a FREE
Copy of Your Credit Report: Learn
More - Click Here.
This
article is courtesy of the Federal Trade Commission.
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