Mortgage Info/ Prequalification
Shopping for a home loan or mortgage will help you get the best financing deal. A mortgage — whether it's a home purchase, a refinancing, or a home equity loan — is 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.
Be sure to get information about mortgages from several lenders. Know how much 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 from each lender.
Ask each lender 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 mortgages go up, generally so do the monthly payments. If the rate quoted is for an adjustable-rate mortgage, 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, lender fees, and certain other charges that you may be required to pay, expressed as a yearly rate.
Points are fees paid to the lender and are often linked to the current market interest rate; usually the more points you pay, the lower the rate. Ask for points to be quoted to you as a dollar amount — rather than just as the number of points — so that you will know how much you will actually have to pay.
A home loan often involves many fees, such as loan origination or underwriting fees, lender fees, and settlement or closing costs. Every lender 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, thus total payment. "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.
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 down — sometimes as little as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the homebuyer to purchase private mortgage insurance (PMI) to protect the lender in case the homebuyer fails to pay. When government-assisted programs like 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 the PMI premium is included.
Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender. 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. If that happens, try to negotiate a compromise with the lender.
Remember: Shop, Compare, Negotiate
When buying a home, remember to shop around, to compare costs and terms, and to negotiate for the best deal.