How To Shop For A Mortgage
Buying a home is a big purchase, but it’s just that: a purchase. When it comes to spending money on our daily expenses, we have lots of options to help us find the best deal possible. When shopping for a mortgage buyers should do the same thing. When comparison shopping for loans you are primarily looking for the differences in the interest rates. Although there are other fees involved with obtaining a mortgage, the interest rate will ultimately dictate how much you spend on the cost of the home. When you apply for any type of loan the interest on that loan is the amount you will be charged for borrowing the money to make the purchase.
Home loans are available from various types of lenders like 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 and mortgage companies. To read more about the various types of mortgage lenders, click here.
Failing to shop for a mortgage could cost you even if it’s just for half of a percent difference in the interest rate. For example, a borrower taking out a 30-year fixed rate conventional loan who gets an interest rate of 4.0% instead of 4.5% will translate into a savings of approximately $60 per month. With a 4.0% interest rate, over the first five years, you would save about $3,500 in mortgage payments due to the half percent difference. In addition, the lower interest rate means that you’d pay off an additional $1,400 in principal costs within those first five years. Even if you are making lower payments on a loan with an interest rate of 4.5%, you would still save more money on the overall life of the loan with an interest rate of 4.0%. This is important when you consider that the mortgage loan is for a 30-year time period.
When shopping for a mortgage you need to first know the amount of the loan you can be approved for and how much you want to spend to purchase a home. It’s a good idea to do a home search to see how much homes are priced for in the areas you are interested in and for the type of home you want. If you have already selected a home you are interested in, simply provide the home’s address and purchase price to the lender or broker. Keep in mind that other buyers who already have been approved for a loan may also be interested in the same home. Certain homes will generate a lot of interest so they may go under contract before you can make an offer on the home. It is always a good idea to get
pre-approved for a mortgage loan prior to home shopping.
After you know how much you can spend on the purchase price you need to know how much of a down payment you can afford. There are a number of down payment programs for Georgia buyers. Research and find out the different down payment assistance programs available to you. To read more about the buyer assistance programs, click here.
The purpose of shopping for a mortgage is to find out all of the costs involved with getting a mortgage. Knowing just the amount of the monthly payment and/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 with various lenders and/or brokers.
Ask each lender and/or broker for a list of their current mortgage interest rates and whether the rates being quoted are the lowest for that day or week since interest rates change daily.
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 if your loan payment will be reduced when rates go down.
Ask about the loan’s annual percentage rate (APR). The APR not only takes into account the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay at closing. Ask for points to be quoted to you as a dollar amount rather than just the number of points so you will know how much you will actually have to pay at closing. (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 interest rate will be.)
A home loan often involves a number of fees,such as loan origination or underwriting fees, broker fees, and settlement (or closing costs). Every lender or broker should be able to give you an estimate of its fees so ask what each fee includes because several items may be lumped into one fee. Also, 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 you will receive.
Ask about the lender’s requirements for the down payment, including what you need to do to verify that funds for your down payment are available. Also, ask your lender about special down payment programs they may offer.
If PMI is required for your loan, ask what the total cost of the insurance will be and how much your monthly payment will be when the PMI premium is included. (PMI is required for down payments less than 20%.)