We all want to save as much of our hard earned money as we can. Luckily for those shopping for a mortgage, there are several steps you can take to ensure you are saving money and getting the best deal possible.
Step 1: Get Lots of Estimates
Home loans are available from many different types of lenders, such as credit unions, big commercial banks, private mortgage companies, and thrift institutions. It’s worth your time to contact various types of lenders to see which has a program that best fits your needs.
Most of these lenders have forms that you can fill out online to get a custom rate estimate. If they don’t, you can always shoot them a call to give them your information. Make sure you give each lender the same personal information so that you can compare rates directly. Most lenders will require you to give them different variations of the following information:
- Your name
- The loan amount
- Your social security number (so they can get your credit score)
- The address and price of the house you want to buy
- Your income
When you compare rates, make sure that you are comparing the same type of loan (the rates for a 30-year fixed will be different than a 15-year adjustable loan). Also, rates change frequently so try to compare them on the same day to get the most accurate information.
Another thing to consider is working with a mortgage broker who will help you find a lender and arrange transactions. They usually have connections with lots of lenders and can provide you with a wide variety of products and terms—for a fee. However, like lenders, you should consider contacting more than 1 broker to ensure that you are getting the best deal.
Step 2: Know the Costs Involved With Taking out a Mortgage
Unfortunately, there are some lenders out there who play games. They might offer you a lower rate but compensate by giving you higher closing costs (or vice versa). Instead of falling for their tricks, it is important to know all of the fees involved with taking out a mortgage so that you can insure you’re getting the best deal.
Every mortgage will have a mortgage rate, or the rate of interest that a lender will charge you on your loan. They normally come in fixed or adjustable options. With a fixed interest rate, you will be paying the same amount of interest throughout the life of your loan. With an adjustable rate, your rate will remain fixed for a certain period of time and then adjust at intervals according to the benchmark interest rate.
Another factor that adds to your monthly interest is the annual percentage rate (APR). APRs are based on credit charges, broker fees, and points. Be sure to ask your lender how much you will be paying per month in APR.
Points are fees paid to a lender for the loan. Each point is equivalent to 1% of the loan amount and there are two types.
Origination points are used to pay loan officers for their efforts in closing a loan for you. Ask lenders how many origination points you will have to pay for the loan as these will add to your total cost.
Discount points are paid up front in exchange for a lower interest rate. Usually if you buy one point the lender will lower the interest rate by around 0.25%. These can be used to decrease your long-term cost.
Private Mortgage Insurance:
Some lenders offer low down payment options. However, if you put less than 20% down, it is likely that they will make you get private mortgage insurance (PMI) to protect them from damage if you default on the loan. PMI will add to your monthly payment, so be sure to ask if you need to take it out.
Closing costs are all the fees related to getting your loan. These include title search and insurance, appraisal fees, government recording and transfer fees, and escrow charges. Lenders are required to estimate these closing costs accurately using a “good faith estimate” so be sure to ask for one.
Step 3: Compare Lenders and Choose One
Now that you know the fees involved with taking out a mortgage, compare your potential lenders. Though obtaining the best deal financially will likely be a priority, make sure you also consider these three things below.
Some lenders charge borrowers a fee if they pay off their loan early. There are two types of prepayment penalties. A “soft” penalty is only charged if the borrower pays back the loan early with a refinance while a “hard” penalty is charged if the loan is payed back for any reason. Be sure to ask if your loan has a prepayment penalty, especially if you don’t plan on staying in your house for the entire life of the loan.
Rate Lock Period
When a lender offers you a rate, they will usually designate an amount of time in which you have to close loan and receive the rate, called the “rate lock period.” A longer lock period will give you more time to complete the process, and since most of us are pretty busy, this can be helpful. Some lenders charge a fee if you ask to extend the rate lock period, so make sure you ask lenders if they do.
Comfort with a Loan Officer/ Lender
The mortgage process can be tedious, so you want to be sure that you are working with a loan officer that you trust to get the job done in a timely and accurate manner. A slightly lower rate might look appealing, but it may not be worth it if it comes from an untrustworthy source.
Step 4: Negotiate
Many prices that come with a mortgage can be negotiated, especially since you can use all the offers you got from other lenders to increase your bargaining power. Even if your lender doesn’t lower their prices, it doesn’t hurt to ask. You can’t negotiate about transfer taxes, appraisal fees, and government recording fees, however, you can negotiate interest rates and closing costs.
Now that you know how to find yourself the best deal, it’s time to get started. Be sure to check out what Total Mortgage can offer you at https://www.totalmortgage.com.