Most people price shop when buying items for their home or when buying a new car. But, believe it or not, many fail to price shop when making the biggest purchase of their life.
Depending on the type of loan, the institution you choose, and your own credit worthiness, loan rates and terms are negotiable. That means that one bank can give you one rate and a similar bank can give you a completely different deal, because not all mortgage loans are the same. Shopping around for the best rates and terms is essential and can save you thousands of dollars over the course of your home ownership.
Talk To Several Lenders
There are many kinds of lenders available that provide mortgage loans. They include:
- Commercial Banks
- Credit Unions
- Mortgage Companies
- Savings and Loan Associations
- Mutual Savings Banks
Each type of lender will quote you a different rate with different terms because their institutions have different lending regulations, requirements, and offers. Although you can do some research online, your best bet to learn about various lenders is to start with the bank where you currently have an account. Many banks offer current customers their best deals. You might also ask friends and family for their recommendations, as well as your real estate agent.
Keep in mind that a mortgage loan is an expensive undertaking at any bank. Over the course of a home loan, it is very feasible to spend thousands of dollars in interest alone. Therefore, expect to be treated as a special customer. If you don’t get that feeling, then look for another loan institution.
As of April 2014, lenders must offer advice concerning the best mortgage for you. They do this by assessing how much you can afford to pay monthly based on your debt to income ratio. However, do not rely solely on this advice. Learn about the different loans available to you so that you can talk with them about what you need, what you want, and how you want them to help you.
Look At All The Fees
A loan rate is not the only thing that should determine if you take a loan or not. Loan fees can be substantial, so determining what you are going to pay up front and over the course of the loan is essential. Here are the fees you’ll want to consider when choosing a mortgage loan:
- Rate: Find out what the interest rate is for the day and for the week. Also, find out whether the rate is a fixed rate or an adjustable rate. Remember, adjustable rates change over time, changing your mortgage payment with it.
- APR: The APR takes into account the interest rate of the loan as well as all the other charges you will be paying such as points and brokerage fees.
- Points: This is an amount you pay to the lender for the loan. The more points you pay, the lower your interest rate can be. A loan officer may tell you that you will be paying two points, but that doesn’t really mean much. Ask instead to have that quoted as a dollar amount.
- Fees: There are many fees associated with a home loan. Such fees include broker fees, closing costs, loan origination fees, application fees, appraisal fees, and underwriting fees. Believe it or not, many fees are negotiable, so always ask how you can reduce them. Some fees are paid up front and others can be lumped into the loan. If you don’t understand a fee, have your loan officer explain it.
- Down Payment: Down payments can be nothing for a VA loan and up to 20% on a conventional loan. Ask about your lenders requirements so that you know how much you will need as a down payment towards your home.
- Private Mortgage Insurance: If you make less than a 20% down payment, you may be required to take out private mortgage insurance (PMI). This protects the institution in case you fail to make your payments. Ask about the cost of your PMI, and ask for the monthly mortgage payment cost with PMI included.
Time To Negotiate
Your lender will tell you what they have to offer. Once you know their deals, it is time to negotiate. Loan officers have some wiggle room and can offer better deals depending upon the day, the number of loans they have written, your credit worthiness, and a number of other factors.
One way to do this is to write down all the costs associated with the loan. Look at each fee and see which ones the banker can eliminate or reduce. Do not be afraid to ask for better rates. Asking can get you an even better deal than what was originally quoted. Once you have a deal that makes you happy, ask for a written lock-in. This lock-in should clearly specify, the interest rate, number of points, and how long the lock-in lasts.
Remember, the mortgage market is very competitive. There are many different mortgage products available to you, and it is up to you to shop around and find the ones that fit your needs and your wallet.
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