If you want to buy a house, chances are you are also searching for the perfect mortgage. In fact, it is often better to find out the amount of loan for which you are qualified. Getting “pre-qualified” is a great help in narrowing down the list of homes you can afford, and is a great tool for negotiating the purchase price.
If done right, securing a home loan can save you a considerable amount of money
Get Information from Multiple Sources. Depending on your location and what kind of loan you are looking for, you will probably get different quotes from different financial institutions. By comparing information and pricing from each institution, you can more fully understand your mortgage options. You may choose to consult a real estate broker since they have a wide access to varying lenders, allowing you to pick from an even larger selection. Keep in mind, however, that they are not inclined to pick out the best deal for you unless they have been contracted as your agent.
Make Sure to Check out Rates. When talking to lenders and brokers, make sure to ask for a list of up-to-date interest rates and check where the quotes rank in terms of price. These rates can either be fixed or adjustable. For example, if an adjustable rate loan goes up, so will the monthly payment. You can ask how this adjustable rate will affect payments. It’s possible your payments will even be reduced when rates drop. Make sure to ask about the APR (annual percentage rate) to understand all other possible credit charges.
Points and Fees. Points are fees that are paid to the lender or broker linked to the interest rate. Often the more you pay, the lower the rate so check your local newspapers that document currently available rates and points. Also, make sure to ask for the dollar amount in your quote, saving the hassle of interpreting points. Fees also play a large role in home loans and should be given in estimate to you from your lender or broker. Make sure you fully understand each fee, how it’s divided up or how this point and fee system works.
Down Payments and Mortgage Insurance. Many down payments have shifted from the common twenty percent up-front purchase to only five percent. If you choose to not make a twenty percent down payment however, it is likely you will be required to purchase PMI (private mortgage insurance) as back up for the lender if your payment falls through. Luckily, government programs like the FHA, VA, and Rural Development Services can help to make down payments substantially cheaper. Ask about the lender’s requirements for a down payment and if any special programs or services are offered. If a PMI is required, make sure to also ask for the total cost of insurance, what the monthly payments will cost and how long you will be required to carry PMI.
Know Your Rights. Always remember that The Equal Credit Opportunity Act forbids brokers and lenders to discriminate based on color, race, religion, national origin, gender, marital status, age or handicap. These laws mandate that a consumer cannot be refused a loan, charged more or offered less favorable terms based on these characteristics.
When shopping for a mortgage the “shop, compare and negotiate” rule will make sure you fully research costs of all your options. Always ask for details to compare costs to find the best possible deal. Memorize key terms and details and explore all fees to make sure you understand what your loan will cost in the long term. And for more information on mortgage terms and advice check out the HUD booklet or website.