Shopping around for a home loan or mortgage will help you to get the best mortgage deal. You'll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.
Get Information From Several Lenders
Home loans are available from several types of lenders, commercial banks, credit unions, mortgage companies, as well as mortgage brokers. Our site 1-800BadCredit offers loans from several mortgage brokers because our experience tells us that they can do the shopping for you, not only saving you time but also helping you avoid all the headaches that go with this type of shopping, thus ensuring the best mortgage deal. A broker has access to several lenders and that can mean a wider selection of product and service.
Obtain All Important Cost Information
Be sure to get all the information about mortgages from the lenders. 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 is not enough. When looking for the best mortgage deal, always ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. Here is what you should ask from each lender:
Rates
Ask for a list of the 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.
Remember that when interest rates for adjustable-rate loans go up, generally so does the monthly payment. We do not think that adjustable rate loans are the best mortgage deal for most people, but they are available. Keep in mind that the recent mortgage problems that have been in the news were with people who had adjustable rate loans also called ARM's.
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 if the rates go down. This is very unlikely however.
Ask about the loan's annual percentage rate (APR). The APR takes into account not only the interest rate but also points, and any other fees and credit charges that you may have 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, but a point equals 1% of the total amount borrowed, so watch out for excessive points. For instance, on a $150,000 loan 3 points equals $4,500 dollars.
Check your local newspaper for information about rates and points currently being offered. You won't get the best mortgage deal from being too trusting of the broker or lender. Remember, they are in business to make money, and while 1% or so may not seem like much over 30 years, it's YOUR money that's being spent so insist on the best interest rate you can get!
Ask for points to be quoted to you in dollar amounts, so you will know actually how much you will have to pay. It's quite common for the lender to quote the client just the points (which is technically considered full disclosure, but unless you've got your calculator handy you'll never really know how much cash this translates into). That to me is just so much legalese.
Fees
Even the best mortgage deals involve many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and 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. 'No cost' loans are sometimes available, but they may involve a slightly higher rate. It won't hurt to ask.
Ask what each fee includes. Don't be afraid to ask questions. Several items may be included in each fee. Ask for an explanation of any fee you do not understand. Once again don't be afraid to ask questions, any question. There is no such thing as a dumb question. What's dumb is not asking the question and blindly paying fees that you may be able to eliminate or negotiate.
Down Payments and Private Mortgage Insurance (PMI)
In the old days when homes cost a lot less 20% down payment was the standard to purchase a home. Now though with homes costing so much more most lenders offer loans that require less down payment, sometimes as little as 5 percent on conventional loans. If you have bad credit or less than perfect in the 520 - 659 range they will probably require more or else you might pay a slightly higher loan rate, but remember to shop around for the best mortgage deal, one lender may be 1 or 2 percent less and this can really add up to a lot of money. That's why a mortgage broker is best, they will do the comparison for you.
By shopping around you may find a lender that that will let you buy for little or no money down. On my new condo last year (my first ever home purchase) I put down $2,500, which basically paid the closing fees. So I got a 100% loan-to-value at a very good interest rate. And my credit score was in the mid-600's.
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.
If you qualify for a government-assisted program such as FHA (Federal Housing Administration), VA (Veterans Administration) or Rural Development Services the down payment may be a lot smaller.
Tip!
One of the best mortgage deals around could come from the city your moving into! Contact your chamber of commerce in the city you are looking to move to and ask them if they have any special grant or subsidy programs for fist time homebuyers.
Peoria, AZ has a first time homebuyer grant program and my friend received a grant of $15,000 towards the purchase of a home there in 2006. Another friend of mine in California found out about a $50,000 grant from the city of Fountain Valley for first time homebuyers!
Ask about the lenders requirement for down payment, including what you need to do to verify that funds for your down payment are available.
Ask if PMI insurance is required and what the total cost of that will be.
Ask how much your total monthly payment will be including the PMI premium, then contact another lender to make sure this is the best mortgage deal you can get.
Ask how long you will be required to carry PMI.
Get the best mortgage deal you can.
Remember: Shop, Compare, Negotiate. Credit problems? Still Shop, Compare, Negotiate!
