Shopping for a Mortgage - FreeLoanComparison.com

Shopping for a Home Mortgage?

Shopping around for a home loan or home mortgage will help you to get the best financing deal. A residential mortgage--whether it’s a new home purchase, a mortgage refinancing, or a home equity loan--is a product, just like a car, so the mortgage price and mortgage terms may be negotiable. You’ll want to compare all the home mortgage costs involved in obtaining a new home mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.

Obtain Mortgage Information from Several Mortgage Lenders

Home mortgages are available from several types of mortgage lenders--thrift institutions, commercial banks, mortgage companies, and credit unions. Different mortgage lenders may quote you different prices, so you should contact several home mortgage lenders to make sure you’re getting the best price. You can also get a home mortgage through a mortgage broker. Mortgage brokers arrange transactions rather than lending money directly; in other words, they find a mortgage lender for you. A mortgage broker’s access to home mortgage lenders can mean a wider selection of home mortgage loan products and mortgage terms from which you can choose. Mortgage brokers will generally contact several residential home lenders regarding your mortgage 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 mortgage broker, just as you should with banks or thrift institutions.

Whether you are dealing with a mortgage lender or a mortgage broker may not always be clear. Some financial institutions operate as both mortgage lenders and mortgage brokers. And most mortgage brokers’ advertisements do not use the word "mortgage broker." Therefore, be sure to ask whether a mortgage broker is involved. This information is important because mortgage brokers are usually paid a fee for their services that may be separate from and in addition to the mortgage lender’s origination or other mortgage fees. A mortgage mortgage broker’s compensation may be in the form of points; paid at closing or as an add-on to your mortgage interest rate, or both. You should ask each mortgage 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 mortgage brokers as well as the mortgage lenders.

Obtain All Important Cost Information

Be sure to get information about home mortgages and home mortgage refinancing from several mortgage lenders or mortgage brokers. Know how much of a down payment you can afford, and find out all the costs involved in the home mortgage. Knowing just the amount of the monthly payment or the mortgage interest rate is not enough. Ask for information about the same mortgage loan amount, mortgage loan term, and type of home mortgage so that you can compare the information. The following information is important to get from each mortgage lender and mortgage broker:

Mortgage Rates

Ask each mortgage lender and mortgage 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 mortgage rate is fixed or adjustable rate mortgage. Keep in mind that when mortgage rates for adjustable-rate loans go up, generally so does the monthly payment.

If the mortgage rate quoted is for an adjustable-rate loan, ask how your mortgage rate and mortgage loan payment will vary, including whether your home mortgage payment will be reduced when rates go down.

Ask about the mortgage loan’s annual percentage rate (APR). The APR takes into account not only the home mortgage rate but also points, mortgage broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.

Mortgage Points

Points are fees paid to the mortgage lender or mortgage broker for the new home mortgage and are often linked to the home mortgage interest rate; usually the more points you pay, the lower the mortgage rate.

Check your local newspaper for information about home mortgage rates and points currently being offered.

Ask for points to be quoted to you as a dollar amount--rather than just as the number of points--so that you will actually know how much you will have to pay.

Mortgage Costs and Fees

A home mortgage often involves many fees, such as loan origination or underwriting fees, mortgage broker fees, and transaction, settlement, and closing costs. Every mortgage lender or mortgage broker should be able to give you an estimate of its mortgage loan fees. Many of these home financing fees are negotiable. Some new home mortgage fees are paid when you apply for a home mortgage (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these mortgage fees, but doing so will increase your home mortgage amount and total costs. "No cost" residential home mortgages are sometimes available, but they usually involve higher mortgage rates.

Ask what each fee includes. Several items may be lumped into one fee.

Ask for an explanation of any mortgage home mortgage fee you do not understand. Some common mortgage fees associated with a home mortgage closing are listed on the Mortgage Shopping Worksheet in this brochure.

Down Payments and Private Mortgage Insurance

Some mortgage lenders require 20 percent of the home’s purchase price as a down payment. However, many mortgage lenders now offer home mortgage loans that require less than 20 percent down--sometimes as little as 5 percent on conventional loans. If a 20 percent down payment is not made, mortgage lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the mortgage 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 mortgage down payment requirements may be substantially smaller.

Ask about the mortgage 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 mortgage 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 mortgage payment will be when the PMI premium is included.

For more helpful mortgage tips on mortgage refinancing, home mortgages, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!

Last update: November 14, 2008