Home loans are available from several types of lendersâ€”thrift institutions (a general term for savings banks and savings and loan associations), commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure youre getting the best price.
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.
To get the best loan for you, 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.
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, youll 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. The following information is important to get from each lender and broker:
- 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 loans 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.
You have the possibility to lower your interest rate by means of discount points. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point.
Check your local newspaper for information about points currently being offered. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.
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.
There are no fixed criteria for choosing the right loan for you. You will need to analyze your personal situation to decide. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.
- Do you expect your finances to change over the next few years?
- Are you planning to live in this home for a long period of time?
- Are you comfortable with the idea of a changing the mortgage payment amount?
- Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
Afterward, compare the loan terms between the lenders. First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.
Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.