Looking for the Best Mortgage
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- 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.
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