How to shop for the best mortgage
Whether mortgage rates are decreasing or on the rise, one thing will always remain constant, you will always want to get the best deal on your mortgage. After all, shaving a percentage point off your interest rate, paying fewer points or reducing your closing costs could add up to big savings over the course of your loan.
Before you begin shopping for a loan, you should estimate the total loan amount and the monthly payments you can afford. Begin by calling local banks and lending institutions, or by researching lenders on the internet. If you have a checking account at a bank or credit union, make sure to contact them, as they might give a deal to existing customers.
When looking for a mortgage, find out if you are dealing with a lender or a broker.(Click here for more information about the difference between the two.)
But whether you are going through a broker or directly through a lender, understand that these companies operate competitively, so you should shop around for the best deal on the “product” you are buying (your loan) just as you shop for any major purchase. It is recommended that you call at least three lenders or brokers to get the best deal.
When you talk to them, remember that the loan with the lowest monthly payments may not be the best deal. That’s because lenders structure their loans differently, and some may have higher closing costs than others, while other loans may require a larger down payment than others.
Instead, you should ask each lender or broker the same questions about loan. Make sure to ask them:
- What is the minimum down payment?
- What is the length of the loan?
- What is the interest rate?
- What is the annual percentage rate (APR)? (This number, expressed as a yearly rate. It includes the interest rate, points, broker fees, and any other loan charges.)
- Are any points included in the loan?
- Are there any monthly private mortgage insurance premiums (MPI) included in the loan? If so, how long must you keep the insurance?
- What escrow payments are needed?
- What will the total estimated monthly payment be? (This should include the principal, interest, taxes, insurance costs, and any PMI costs.)
In addition to these loan costs which are generally part of your monthly loan payment, there are several other payments you may need to pay at the closing of your loan. Keep in mind that different lenders may have different names for these fees and may that they may have additional charges.
These fees include:
- Application or loan processing fee.
- Origination or loan processing fee.
- Lender fee or funding fee.
- Appraisal fee.
- Attorney fee.
- Document preparation fee.
- Broker fee.
- Credit report fee.
After you have found a loan program you are satisfied with, you may want to ask to see if the prices you were quoted can be “locked-in.” Doing so could protect you from having to pay increased fees if rates rise from when you were quoted the loan price. Some lenders may charge for this, but the fee may be refunded at the time of the loan’s closing.
By putting in some extra legwork when you shop for a home loan, you could save thousands of dollars.