How to Find the Best Mortgage Loan

If you're in the market for a mortgage or home loan, shopping around will help you to get the best financing deal. A mortgage —whether it's a new home purchase, a refinancing, or a home equity loan —is a product, just like a car, so shop around just like you would if you were buying a new SUV. Remember, a mortgages pricing and terms may be negotiable. You should always compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating the best price can save you thousands of dollars.

Compare Several Lenders

Home loans are available from many different types of lenders— thrift institutions, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so be sure to contact several lenders to make sure you're getting the best price possible.

You can also get a mortgage through a mortgage broker. Mortgage Brokers do not lend money; however they will find a lender for you. Mortgage brokers have access to several different lenders, which means they can provide a wider selection of loan products and terms for you to choose from. A Broker will generally contact several lenders regarding your application, but they are not under obligation to find the best deal for you unless you have contracted with him or her to act as your agent. Therefore, you should consider contacting more than one broker and compare fees and interest rates, just as you would with banks or thrift institutions.

Since some financial institutions operate as both lenders and brokers, whether you are dealing with a lender or a broker may not always be clear. Also, most brokers' advertisements do not specify that they are brokers, not lenders. Therefore, be sure to ask whether a broker is involved 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 fee may be in the form of "points" paid at closing or as an add-on to your interest rate, or both. Be sure to ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be sure to negotiate with the brokers as well as the lenders.

Government-assisted Programs

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 then traditional loans, as low as 3 percent for first time home buyers. Ask you lender or mortgage broker if you qualify for any of these loans.

Get all the Facts

Make sure you know exactly how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing the amount of the monthly payment or the interest rate is just not enough. You also need to know the loan amount, the loan term, and type of loan so that you can compare the same information for several lenders. The following is a list of the important information you should 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. Remember that when interest rates for adjustable-rate loans go up, generally the monthly payment will go up as well.
• If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary. It’s pretty much a given that your payment will go up when interest rates climb, but will it be reduced when rates go down.
• Ask about the loan's annual percentage rate (APR). The APR not only takes into account the interest rate being charged, but also the points, the 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. They are often linked to the interest rate and in most instances, the more points you pay, the lower the interest rate.

• Check your local newspaper for information about rates and points currently being offered by the lenders and brokers in your area.
• Ask for points to be quoted as a dollar amount instead of as the number of points so that you will know how much you will have to pay.

Fees

A Mortgage 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 provide you with an estimate of its fees. Some of these fees are negotiable. Some fees (such as application and appraisal fees) are paid when you apply for a loan, and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, however, doing so will increase your loan amount and total costs. "No cost" loans are often available, but they usually involve higher rates.

• Ask what each individual fee includes. Several items may be lumped into one fee.
• Ask for a full explanation of any fees you do not understand.

Private Mortgage Insurance

Many lenders require at least 20 percent of the home's purchase price as a down payment. However, some lenders now offer loans that require less than 20 percent down— often as little as 5 percent. When 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 the event the home buyer fails to pay. Ask each lender its requirements for a down payment, including what you need to do to verify that you have the funds for your down payment readily available.

• Ask your lender about any special programs it may offer.

If PMI is required for your loan,

• Be sure to ask what the total cost of the insurance will be.
• Find out how much your monthly payment with PMI premium added.
• Ask how long you will be required to pay the PMI.

By following the suggestions outlined, you should be able to find the best mortgage at the lowest rate. Click here to find out how to negotiate with lenders and get an even better rate.