Whether you are a first time homebuyer or someone considering a career in the housing market, you need to realize that not all mortgages are the same. It is important to shop around and negotiate, in order to get the best prices and terms. Use the Internet and local newspapers to keep up on current interest rates and check out the efficacy of mortgage lenders you’re considering contacting. Here are some guidelines to help you find the right mortgage lender.
One important consideration is whether you are dealing directly with a mortgage lender or a broker. Lenders arrange mortgages directly with customers, while brokers help you find a lender for a fee. If you choose to deal with a broker, be sure to find out exactly what the fee is. Contact several brokers and compare their fees and services. Alternatively, bypass brokers and their fees, and work directly with mortgage lenders. Either way, be sure to contact numerous lenders or brokers for information on the same type of loan so you have a range of prices and terms from which to choose.
Consider All Costs
Be sure your prospective lender is upfront about all costs. One of the most important considerations is the interest rate and whether it is fixed, which means it stays the same during the life of the loan, or adjustable, which means it fluctuates with minimum and maximum limits. Often an adjustable-rate mortgage has lower initial rates, but be sure to calculate long-term implications of a rate rise. Points are fees paid to the broker and lender and must be calculated into the total loan cost. Numerous fees increase the price of a loan such as appraisal fees, application fees, loan origination or underwriting fees, broker fees, and the costs of transaction, settlement and closing. Other cost considerations include the amount of the down payment, which may vary from 5 to 20 percent of the purchase price of the home, and the possible necessity of buying private mortgage insurance.
Do not accept a first offer at face value. One of the best attributes of a potential mortgage lender or broker is a willingness to negotiate. After obtaining a written estimate that includes the interest rates, fees and other costs of a mortgage, ask the lender or broker how the terms can be improved. Request better terms than those you have been quoted elsewhere. Let lenders and brokers know that you have obtained estimates from several sources and are shopping for the best offer. Once you have shopped around, negotiated and compared, and believe you have found the best possible offer, obtain a written, locked-in agreement, which guarantees you a specific interest rate, points and terms as long as you close the loan within a disclosed period of time, usually ranging from about 60 to 90 days. Sometimes a fee is charged for lock-in service, although it may be refunded when the loan is closed.
Even those who have negative information on their credit reports due to past unemployment or illness should shop around for a knowledgeable mortgage lender or broker, who may be able to offer counsel about what to do to obtain better loan rates and terms. Additionally, mortgage lenders are required by law not to manifest discrimination towards clients based on religion, race, color, age, sex, marital status or whether the applicant receives income from a public assistance program.