Mortgage Shopping Simplified: Finding the Best Rates and Terms
Shopping for a mortgage can help you secure the best financing deal for your home purchase, refinancing, or home equity loan. Just like any other product, the price and terms of a mortgage may be negotiable. By comparing and negotiating, you could save thousands of dollars. In this comprehensive guide, we will walk you through the process of shopping for a mortgage, obtaining cost information, finding the best mortgage rates and terms, and negotiating for the best deal.
Mortgages are available from different types of lenders, including thrift institutions, commercial banks, mortgage companies, and credit unions. Contact multiple lenders directly or you a comparison mortgage site to ensure you're getting the best price. You can also work with a mortgage broker, who will find a lender for you. However, it's essential to contact more than one broker to compare their fees and services.
Gather information about mortgage rates from several lenders or brokers. Understand the costs involved in the loan, such as down payment, monthly payment, and mortgage rates. Ask for information about the same loan amount, term, and type for easy comparison. Important information to obtain includes:
Finding the Best Mortgage Rates and Terms:
To find the best mortgage rates and terms, you'll need to research and compare offers from various lenders. Here are some tips for finding the best mortgage rates and terms:
Understand Points and Fees:
Points are fees paid to the lender or broker and are often linked to the mortgage rate. Generally, the more points you pay, the lower the rate. Be sure to ask for points to be quoted in dollar amounts for easy comparison. Home loans involve various fees, such as origination, underwriting, and closing costs. Negotiate these fees, as some may be negotiable.
Down Payments and Private Mortgage Insurance (PMI):
Lenders may require a down payment, typically 20% of the home's purchase price. Some loans require less than 20%, but this may involve purchasing PMI to protect the lender. Government-assisted programs like FHA, VA, or Rural Development Services may have smaller down payment requirements. Inquire about the lender's down payment requirements and PMI costs, if applicable.
Negotiate for the Best Deal:
Once you know what each lender offers, negotiate for the best deal. On any given day, lenders and brokers may offer different prices for the same loan terms. The difference in price could be due to loan officers and brokers keeping some of the difference as extra compensation. Ask the lender or broker
to write down all the costs associated with the loan and inquire if they will waive or reduce fees, agree to a lower rate, or charge fewer points. Ensure that the lender or broker isn't lowering one fee while raising another or lowering the rate while raising points. Don't hesitate to ask lenders or brokers if they can offer better terms than their original quotes or those found elsewhere.
Lock in Your Mortgage Rate:
Once you are satisfied with the negotiated terms, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the agreed-upon rate, the duration of the lock-in, and the number of points to be paid. A fee may be charged for locking in the loan rate, which may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; however, if rates fall, you could end up with a less favorable rate. In such cases, try to negotiate a compromise with the lender or broker.
Shop, Compare, and Negotiate
When shopping for a mortgage, remember to shop around, compare costs and terms, and negotiate for the best deal. Local newspapers and the internet are great starting points for researching loan offers. Check rates and points from various lenders and don't forget to inquire about fees. Use a Mortgage Shopping Worksheet to help you keep track of the information you collect. Encourage lenders and brokers to compete for your business by letting them know you're shopping for the best deal.
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