Welcome to Quick Lists!
A Great Place to Starttm
Mortgage
Articles
Other Quick Lists Back to Main Mortgage Broker Page Add Your Business
Related Quick-Lists: Banks & Financial Institutions
Article
Looking for the Best Mortgage
Shop, Compare, Negotiate
[this Article is a reprint of a brochure prepared by several Federal Agencies (list at the end of the article]
Shopping around for a home loan or mortgage will help you to 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.
Obtain
Information
from
Several Lenders
Home
loans are available from several
types
of lenders—thrift 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 amount—rather than just
as
the number of points—so 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
down—sometimes 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
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:
(800) 682-7654
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.
Shop,
Compare,
Negotiate
Mortgage
Shopping Worksheet Lender
#1 Lender #2
Lender #3
Lender
1 Lender 2
Name
of Lender: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name
of Contact: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date
of Contact: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage
Amount: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
mortgage
1 mortgage 2 mortgage 1 mortgage 2
Basic
Information on the Loans
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 . . . . . . . . . . . . . . . . . . .
Lender
fee or Funding fee . . . . . . . . . . . . . . . . . . . . . . . . . .
Appraisal
fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attorney
fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Document
preparation and recording fees . . . . . . . . . . . . .
Broker
fees (may be quoted as points, origination fees,
or
interest rate add-on) . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit
report fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Costs at Closing/Settlement
Title
search/Title insurance
For
lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For
you . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
prepaid amounts for interest, taxes,
hazard
insurance, payments to escrow . . . . . . . . . . . . .
State
and local taxes, stamp taxes, transfer taxes . . . . . . .
Flood
determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid
Private Mortgage Insurance (PMI) . . . . . . . . . . . . .
Surveys
and home inspections . . . . . . . . . . . . . . . . . . . . . .
Total
Fees and Other Closing/Settlement Cost
Estimates
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Questions and Considerations
about
the Loan
Are
any of the fees or costs waivable? . . . . . . . . . . . . . . . .
Prepayment
penalties
Is
there a prepayment penalty? . . . . . . . . . . . . . . . . . . . . .
If
so, how much is it? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How
long does the penalty period last? (for example,
3
years? 5 years?) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Are
extra principal payments allowed? . . . . . . . . . . . . . . . .
Lock-ins
Is
the lock-in agreement in writing? . . . . . . . . . . . . . . . . . .
Is
there a fee to lock-in? . . . . . . . . . . . . . . . . . . . . . . . . . . .
When
does the lock-in occur—at application,
approval,
or another time? . . . . . . . . . . . . . . . . . . . . . . .
How
long will the lock-in last? . . . . . . . . . . . . . . . . . . . . . . .
If
the rate drops before closing, can you lock-in at a
lower
rate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If
the loan is an adjustable rate mortgage:
What
is the initial rate? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What
is the maximum the rate could be next year? . . . . . .
What
are the rate and payment caps each year and
over
the life of the loan? . . . . . . . . . . . . . . . . . . . . . . . . .
What
is the frequency of rate change and of any
changes
to the monthly payment? . . . . . . . . . . . . . . . . .
What
is the index that the lender will use? . . . . . . . . . . . . .
What
margin will the lender add to the index? . . . . . . . . . .
Credit
life insurance
Does
the monthly amount quoted to you include
a
charge for credit life insurance? . . . . . . . . . . . . . . . . .
If
so, does the lender require credit life insurance
as
a condition of the loan? . . . . . . . . . . . . . . . . . . . . . . .
How
much does the credit life insurance cost? . . . . . . . . . .
How
much lower would your monthly payment be
without
the credit life insurance? . . . . . . . . . . . . . . . . . .
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? . . . . . . . . . . . . . . . . . .
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
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
(http://www.consumer.gov),
write to the Consumer Information
Center,
site
at (http://www.pueblo.gsa.gov). The following brochures
are
available from the Center:
A
Consumer’s Guide to Mortgage Lock-Ins
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
(c) 2007 NTC Online, LLC