Find The Best Mortgage
Finding the mortgage that's best for you requires some shopping around. Mortgages -- whether your purchasing, refinancing or taking a home equity loan -- are a product, just like a car, so the price and terms can be negotiated. Shop around and compare all of the costs of each lender's mortgage quote. A smart consumer can save thousands -- or tens of thousands -- of dollars over the life of your home mortgage.
Get Information From Several Lenders
Home loans are available from several types of lenders -— thrift institutions (the formal name for what we'd call a savings bank or a savings and loan association), commercial banks, mortgage companies, and credit unions. What type of mortgage and the terms like the size of the down payment required, the interest rate and the length of the mortgage will vary from lender to lender. You need to shop around to find the mortgage that is the best deal for your situation.
Banks aren't the only place to look for a mortgage. You can also get a home loan through a mortgage broker. Brokers are matchmakers rather than lenders. Their job is to find customers for lenders and find lenders for borrowers. Brokers generally work with several lenders offering a variety of mortgages. A broker is not required to get you the best deal possible on a mortgage (unless you have hired him as your agent). Brokers are paid a commission when they help set up a loan. The lender may require you to pay points or an increased interest rate to cover the broker's fee. The only definite way to determine if you're working directly with the lender or with a broker is to ask. Most broker's ads don't include the word 'broker.' If there is a broker involved in getting your mortgage, be sure to ask how she will be paid. You can often negotiate the broker's commission as part of the mortgage negotiations. Mortgage brokers are not created equal, see our article about how to find a good mortgage broker.
Know What Your Mortgage Will Cost
While you're shopping around for the best mortgage, compare all of the costs of each mortgage quote -- the interest rate alone doesn't tell you the whole story. Once you have an idea how large a mortgage you need and how large a down payment you can make ask several lenders and/or brokers for information about:
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Interest Rates
Get the current interest rate from each lender and broker for the mortgages they offer. Remember they don't have to give you their best offer - be sure to ask if these are the lowest rates available. Ask if these rates are for a fixed rate mortgage or an adjustable rate mortgage. If the interest rate is for an adjustable rate mortgage, ask how long the rate stays at the initial rate, how often the bank can change the rate and if there is a cap on how high the rate can go over the life of the loan. And, be sure that if interest rates go down, your mortgage's interest rate will also go down. -
Points
Points are fees paid up front to the lender or mortgage broker. They're usually expressed as a percentage of the amount you borrow. Usually, the more points you pay, the lower your interest rate should be. Remember points are paid up front - you have to have the cash (some lenders will lend you the cash and add it to the amount you're borrowing). -
Fees
Your mortgage will involve many fees. Some of them, like the application and appraisal fees, have to be paid when you apply for your mortgage. Other fees, such as under-writing fees, broker fees, and transaction, settlement, and closing costs are paid at closing. Be sure to know how much cash you'll need to pay them all at closing. Some lenders advertise "No Cost" mortgages. They usually involve paying a higher interest rate. Don't be shy about asking what each fee is for. Lenders are required to give you a good faith estimate of all fees required within three days of your applying for a mortgage. -
Down Payment and Private Mortgage Insurance
Traditionally mortgages required a down payment of 20% of the home's purchase price. Now many lenders offer mortgages that require as little as 5% of the home's purchase price. If you put down less than 20% most lenders will require you to purchase private mortgage insurance (PMI). This insurance protects the lender if you cannot repay your mortgage. Ask what the total cost of the insurance will be. Many lenders will allow you to stop purchasing PMI when your payments have paid off 20% of the home's purchase price, ask each lender how long you will need to insure your mortgage.
Get the Best Mortgage Deal
After you've seen what each lender is offering, be prepared to negotiate for a better deal. Lenders and brokers may not offer you their best rate the first time you ask. Often they're allowed to keep -- as profit -- the difference between the lender's best rate and what they get you to pay. Politely ask if they've offered you their best rate.
The lender is required to give you a good faith estimate of all the fees associated with your mortgage within three days of your applying for the mortgage. Ask if the lender can reduce one or more of the fees or give your a lower interest rate. Make sure they don't try to agree to lowering one fee but raising another fee or increasing the interest rate. Affording a home is tough enough without paying more than you have to. Remember a small change in the interest rate can save you -- or cost you -- tens of thousands of dollars over the life of the loan.
When you have negotiated the best terms the lender can offer, get it in writing. This is called 'locking-in' the mortgage. The lock-in agreement should include the interest rate you agree upon, the number of points, the expected fees and how long the lock-in agreement is good for. Banks will usually agree to locking in the offer for 30, 60 or sometimes 90 days. The lender may require a fee for the lock-in, sometimes that fee is refundable at closing. When your loan is locked-in, you are protected in case interest rates rise while the lender is processing your loan. If interest rates fall while the bank is processing your mortgage, try to negotiate a compromise to get a lower rate.
OK, time to start looking for the best deal on your mortgage. How do you find the lenders? Your local newspaper will have ads
from lots of local banks. Watch the ads daily - the offers change as the interest rate rises and falls. There are also several
websites that will let you submit a mortgage application to several banks at once -- free. The services listed below are all
free, there's no credit check and there's no obligation:
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Ameriquest Mortgage works with borrowers
who have less than perfect credit. They have over 150 branches nationwide, you can apply at a branch or online.
We also have a list of lenders that will provide free quotes for home equity, debt consolidation loans and home mortgage refinancing.
Still need more information? The Federal Trade Commission has a free pamphlet on finding the best mortgage.