Looking for the Best Mortgage
Shopping around for a home loan or
mortgage will help you to get the best financing deal.
A mortgagewhether it's a home purchase, a refinancing,
or a home equity loanis a product, just like a
car, so the price and terms may be negotiable. You'll
want to compare all the costs involved in obtaining
a mortgage. Shopping, comparing, and negotiating may
save you thousands of dollars.
Obtain Information from Several
Lenders
Home loans are available from several
types of lendersthrift
institutions, commercial banks, mortgage
companies, and credit unions. Different lenders may
quote you different prices, so you should contact several
lenders to make sure you're getting the best price.
You can also get a home loan through a mortgage broker.
Brokers arrange transactions rather than lending
money directly; in other words, they find a lender for
you. A broker's access to several lenders can mean a
wider selection of loan products and terms from which
you can choose. Brokers will generally contact several
lenders regarding your application, but they are not
obligated to find the best deal for you unless they
have contracted with you to act as your agent.
Consequently, you should consider contacting more than
one broker, just as you should with banks or thrift
institutions.
Whether you are dealing with a lender
or a broker may not always be clear. Some financial
institutions operate as both lenders and brokers. And
most brokers' advertisements do not use the word "broker."
Therefore, be sure to ask whether a broker is involved.
This information is important because brokers are usually
paid a fee for their services that may be separate from
and in addition to the lender's origination or other
fees. A broker's compensation may be in the form of
"points" paid at closing or as an add-on to
your interest
rate, or both. You should ask each broker
you work with how he or she will be compensated so that
you can compare the different fees. Be prepared to negotiate
with the brokers as well as the lenders.
Obtain All
Important Cost Information
Be sure to get information about mortgages
from several lenders or brokers. Know how much of
a down payment you can afford, and find out all the
costs involved in the loan. Knowing just the amount
of the monthly payment or the interest rate is not
enough. Ask for information about the same loan
amount, loan term, and type of loan so that you can
compare the information. The following information
is important to get from each lender and broker:
Rates
- Ask each lender and broker for a list of its current
mortgage interest rates and whether the rates being
quoted are the lowest for that day or week.
- Ask whether the rate is fixed
or adjustable.
Keep in mind that when interest rates for adjustable-rate
loans go up, generally so does the monthly payment.
- If the rate quoted is for an adjustable-rate loan,
ask how your rate and loan payment will vary, including
whether your loan payment will be reduced when rates
go down.
- Ask about the loan's annual
percentage rate (APR). The APR takes
into account not only the interest rate but also points,
broker fees, and certain other credit charges that
you may be required to pay, expressed as a yearly
rate.
Points
Points
are fees paid to the lender or broker for the loan
and are often linked to the interest rate; usually the
more points you pay, the lower the rate.
- Check your local newspaper for
information about rates and points currently being
offered.
- Ask for points to be quoted to
you as a dollar amountrather than just as the
number of pointsso that you will actually know
how much you will have to pay.
Fees
A home loan often involves many fees,
such as loan
origination or underwriting fees, broker
fees, and transaction,
settlement, and closing costs. Every lender
or broker should be able to give you an estimate of
its fees. Many of these fees are negotiable. Some fees
are paid when you apply for a loan (such as application
and appraisal fees), and others are paid at closing.
In some cases, you can borrow the money needed to pay
these fees, but doing so will increase your loan amount
and total costs. "No cost" loans are sometimes
available, but they usually involve higher rates.
- Ask what each fee includes. Several
items may be lumped into one fee.
- Ask for an explanation of any fee
you do not understand. Some common fees associated
with a home loan closing are listed on the Mortgage
Shopping Worksheet in this brochure.
Down Payments and Private Mortgage
Insurance
Some lenders require 20 percent of
the home's purchase price as a down payment. However,
many lenders now offer loans that require less than
20 percent downsometimes as little as 5 percent
on conventional
loans. If a 20 percent down payment is not
made, lenders usually require the home buyer to purchase
private
mortgage insurance (PMI) to protect the lender
in case the home buyer fails to pay. When government-assisted
programs such as FHA (Federal Housing Administration),
VA (Veterans Administration), or Rural Development Services
are available, the down payment requirements may be
substantially smaller.
- Ask about the lender's requirements
for a down payment, including what you need to do
to verify that funds for your down payment are available.
- Ask your lender about special programs
it may offer.
If PMI is required for your loan,
- Ask what the total cost of the
insurance will be.
- Ask how much your monthly payment
will be when including the PMI premium.
- Ask how long you will be required
to carry PMI.
Obtain the Best Deal That You Can
Once you know what each lender has
to offer, negotiate for the best deal that you can.
On any given day, lenders and brokers may offer different
prices for the same loan terms to different consumers,
even if those consumers have the same loan qualifications.
The most likely reason for this difference in price
is that loan officers and brokers are often allowed
to keep some or all of this difference as extra compensation.
Generally, the difference between the lowest available
price for a loan product and any higher price that the
borrower agrees to pay is an overage.
When overages occur, they are built into the prices
quoted to consumers. They can occur in both fixed and
variable-rate loans and can be in the form of points,
fees, or the interest rate. Whether quoted to you by
a loan officer or a broker, the price of any loan may
contain overages.
Have the lender or broker write down
all the costs associated with the loan. Then ask if
the lender or broker will waive or reduce one or more
of its fees or agree to a lower rate or fewer points.
You'll want to make sure that the lender or broker is
not agreeing to lower one fee while raising another
or to lower the rate while raising points. There's no
harm in asking lenders or brokers if they can give better
terms than the original ones they quoted or than those
you have found elsewhere.
Once you are satisfied with the terms
you have negotiated, you may want to obtain a written
lock-in from the lender or broker. The lock-in
should include the rate that you have agreed upon, the
period the lock-in lasts, and the number of points to
be paid. A fee may be charged for locking in the loan
rate. This fee may be refundable at closing. Lock-ins
can protect you from rate increases while your loan
is being processed; if rates fall, however, you could
end up with a less favorable rate. Should that happen,
try to negotiate a compromise with the lender or broker.
Remember:
Shop, Compare, Negotiate
When buying a home, remember to shop
around, to compare costs and terms, and to negotiate
for the best deal. Your local newspaper and the Internet
are good places to start shopping for a loan. You can
usually find information both on interest rates and
on points for several lenders. Since rates and points
can change daily, you'll want to check your newspaper
often when shopping for a home loan. But the newspaper
does not list the fees, so be sure to ask the lenders
about them.
The Mortgage
Shopping Worksheet that follows may also help you.
Take it with you when you speak to each lender or broker
and write down the information you obtain. Don't be
afraid to make lenders and brokers compete with each
other for your business by letting them know that you
are shopping for the best deal.
Fair Lending
Is Required by Law
The Equal Credit Opportunity Act
prohibits lenders from discriminating against credit
applicants in any aspect of a credit transaction on
the basis of race, color, religion, national origin,
sex, marital status, age, whether all or part of the
applicant's income comes from a public assistance program,
or whether the applicant has in good faith exercised
a right under the Consumer Credit Protection Act.
The Fair Housing Act prohibits
discrimination in residential real estate transactions
on the basis of race, color, religion, sex, handicap,
familial status, or national origin.
Under these laws, a consumer cannot
be refused a loan based on these characteristics
nor be charged more for a loan or offered
less favorable terms based on such characteristics.
Credit Problems? Still Shop, Compare,
and Negotiate
Don't assume that minor credit problems
or difficulties stemming from unique circumstances,
such as illness or temporary loss of income, will limit
your loan choices to only high-cost lenders.
If your credit report contains negative
information that is accurate, but there are good reasons
for trusting you to repay a loan, be sure to explain
your situation to the lender or broker. If your credit
problems cannot be explained, you will probably have
to pay more than borrowers who have good credit histories.
But don't assume that the only way to get credit is
to pay a high price. Ask how your past credit history
affects the price of your loan and what you would need
to do to get a better price. Take the time to shop around
and negotiate the best deal that you can.
Whether you have credit problems or
not, it's a good idea to review your credit report for
accuracy and completeness before you apply for a loan.
To order a copy of your credit report, contact:
Equifax: (800) 685-1111
TransUnion: (800) 916-8800
Experian: (888) EXPERIAN (397-3742)
Glossary
Adjustable-rate
loans, also known as variable-rate loans, usually
offer a lower initial interest rate than fixed-rate
loans. The interest rate fluctuates over the life of
the loan based on market conditions, but the loan agreement
generally sets maximum and minimum rates. When interest
rates rise, generally so do your loan payments; and
when interest rates fall, your monthly payments may
be lowered
Annual
percentage rate (APR) is the cost of credit
expressed as a yearly rate. The APR includes the interest
rate, points, broker fees, and certain other credit
charges that the borrower is required to pay.
Conventional
loans are mortgage loans other than those insured
or guaranteed by a government agency such as the FHA
(Federal Housing Administration), the VA (Veterans Administration),
or the Rural Development Services (formerly know as
Farmers Home Administration, or FmHA).
Escrow
is the holding of money or documents by a neutral third
party prior to closing. It can also be an account held
by the lender (or servicer) into which a homeowner pays
money for taxes and insurance.
Fixed-rate
loans generally have repayment terms of 15,
20, or 30 years. Both the interest rate and the monthly
payments (for principal and interest) stay the same
during the life of the loan.
The interest
rate is the cost of borrowing money expressed
as a percentage rate. Interest rates can change because
of market conditions.
Loan
origination fees are fees charged by the lender
for processing the loan and are often expressed as a
percentage of the loan amount.
Lock-in
refers to a written agreement guaranteeing a home buyer
a specific interest rate on a home loan provided that
the loan is closed within a certain period of time,
such as 60 or 90 days. Often the agreement also specifies
the number of points to be paid at closing.
A mortgage
is a document signed by a borrower when a home loan
is made that gives the lender a right to take possession
of the property if the borrower fails to pay off on
the loan.
Overages
are the difference between the lowest available price
and any higher price that the home buyer agrees to pay
for the loan. Loan officers and brokers are often allowed
to keep some or all of this difference as extra compensation.
Points
are fees paid to the lender for the loan. One point
equals 1 percent of the loan amount. Points are usually
paid in cash at closing. In some cases, the money needed
to pay points can be borrowed, but doing so will increase
the loan amount and the total costs.
Private
mortgage insurance (PMI) protects the lender
against a loss if a borrower defaults on the loan. It
is usually required for loans in which the down payment
is less than 20 percent of the sales price or, in a
refinancing, when the amount financed is greater than
80 percent of the appraised value.
Thrift
institution is a general term for savings banks
and savings and loan associations.
Transaction,
settlement, or closing costs may include application
fees; title examination, abstract of title, title insurance,
and property survey fees; fees for preparing deeds,
mortgages, and settlement documents; attorneys' fees;
recording fees; and notary, appraisal, and credit report
fees. Under the Real Estate Settlement Procedures Act,
the borrower receives a good faith estimate of closing
costs at the time of application or within three days
of application. The good faith estimate lists each expected
cost either as an amount or a range.
This brochure was prepared by the
following agencies:
- Department of Housing and Urban
Development
Department of Justice
Department of the Treasury
Federal Deposit Insurance Corporation
Federal Housing Finance Board
Federal Reserve Board
Federal Trade Commission
National Credit Union Administration
Office of Federal Housing Enterprise Oversight
Office of the Comptroller of the Currency
Office of Thrift Supervision
These agencies (except the Department
of the Treasury) enforce compliance with laws that prohibit
discrimination in lending. If you feel that you have
been discriminated against in the home financing process,
you may want to contact one of the agencies listed above
about your rights under these laws.
For more information on home
lending issues, visit www.consumer.gov,
write to the Consumer Information Center, Pueblo, CO
81009 or visit the Center's
Web site. The following brochures are available
from the center:
- A Consumer's Guide to Mortgage
Lock-lns
A Consumer's Guide to Mortgage Refinancing
Buying Your Home: Settlement Costs and Helpful Information
Consumer Handbook on Adjustable Rate Mortgages
Guide to Single Family Home Mortgage Insurance
Home Buyer's Vocabulary
Home Mortgages: Understanding the Process and Your
Rights to Fair Lending
How to Buy a Home with a Low Down Payment
How
to Dispute Credit Report Errors
The HUD Home Buying Guide
When Your Home Is on the Line
-
Mortgage
Shopping Worksheet
|
Lender
1 |
Lender
2 |
Name
of Lender |
|
|
Name
of Contact |
|
|
Date
of Contact |
|
|
Mortgage
Amount |
|
|
Basic
Information on the Loans |
Mortgage
1 |
Mortgage
2 |
Mortgage
1 |
Mortgage
2 |
Type
of Mortgage: Fixed rate, adjustable rate,
conventional, FHA, other? If adjustable, see
below. |
|
|
|
|
Minimum
down payment required |
|
|
|
|
Loan
term (length of loan) |
|
|
|
|
Contract
interest rate |
|
|
|
|
Annual
percentage rate (APR) |
|
|
|
|
Points
(may be called loan discount points) |
|
|
|
|
Monthly
Private Mortgage Insurance (PMI) premiums |
|
|
|
|
How
long must you keep PMI? |
|
|
|
|
Estimated
monthly escrow
for taxes and hazard insurance |
|
|
|
|
Estimated
monthly payment
(Principal, Interest, Taxes, Insurance, PMI) |
|
|
|
|
Fees
Different institutions may have different
names for some fees and may charge different
fees. We have listed some typical fees you
may see on loan documents. |
|
|
|
|
Application
fee or Loan processing fee |
|
|
|
|
Origination
fee or Underwriting fee |
|
|
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Lender
fee or Funding fee |
|
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|
Appraisal
fee |
|
|
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|
Attorney
fees |
|
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Document
preparation and recording fees |
|
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Broker
fees (may be quoted as points, origination
fees, or interest rate add-on) |
|
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|
Credit
report fee |
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Other
fees |
|
|
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Other
Costs at Closing/Settlement |
|
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|
Title
search/Title Insurance
For lender For
you |
|
|
|
|
Estimate
prepaid amounts for interest, taxes, hazard
insurance, payments to escrow |
|
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State
and local taxes, stamp taxes, transfer taxes |
|
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Flood
determination |
|
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Prepaid
Private Mortgage Insurance (PMI) |
|
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Surveys
and home inspections |
|
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|
Total
Fees and Other Closing/Settlement Cost Estimates |
|
|
|
|
Mortgage Shopping Worksheet - continued
|
Lender
1 |
Lender
2 |
Name
of Lender |
|
|
Other
Questions and Considerations about the Loan |
Mortgage
1 |
Mortgage
2 |
Mortgage
1 |
Mortgage
2 |
Are
any of the fees or costs waivable? |
|
|
|
|
Prepayment
penalties |
|
|
|
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Is
there a prepayment penalty? |
|
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If
so, how much is it? |
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How
long does the penalty period last? (for example,
3 years? 5 years?) |
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Are
extra principal payments allowed? |
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Lock-ins |
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Is
the lock-in agreement in writing? |
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Is
there a fee to lock-in? |
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When
does the lock-in occur -0 at application, approval
or another time? |
|
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|
How
long will the lock-in last? |
|
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|
|
If
the rate drops before closing, can you lock-in
at a lower rate? |
|
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|
If
the loan is an adjustable rate mortgage: |
|
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|
|
What
is the initial rate? |
|
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What
is the maximum the rate could be next year? |
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What
are the rate and payment caps each year and
over the life of the loan? |
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What
is the frequency of rate change and of any changes
to the monthly payment? |
|
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What
is the index that the lender will use? |
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What
margin will the lender add to the index? |
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Credit
life insurance |
|
|
|
|
Does
the monthly amount quoted to you include a charge
for credit life insurance? |
|
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|
If
so, does the lender required credit life insurance
as a condition of the loan? |
|
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How
much does the credit life insurance cost? |
|
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|
How
much lower would your monthly payment be without
the credit life insurance? |
|
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|
If
the lender does not require credit life insurance,
and you still want to buy it, what rates can
you get from other insurance providers? |
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