Home loans are available from several types of lenders thrift institutions, commercial banks, mortgage companies, credit unions, etc. Different lenders will quote you different prices and offer a variety of interest payment schemes, so you should contact several lenders to make sure you're getting the best price.
If confusion reigns, you can turn to a mortgage broker. Brokers arrange transactions rather than lending money directly; their job is to find you a loan, or several options to consider. A broker's access to several lenders should mean a wider array of loans and mortgage types to choose from. Brokers will come back to you with several possibilities, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. You should therefore find a mortgage broker that you re comfortable with and give him an exclusive with the obligation to find you the best deal; or, as an alternative, contact more than one broker.
Be consistent in your questions, so that you are comparing apples and apples. You can start with these basics:
Ask each lender and broker for a list of its current mortgage interest rates and how they match up with the lowest rates on the market that day.
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. The other important question on an ARM is whether or not there are penalties for premature payment. If you re considering refinancing your ARM in five years, penalties are not acceptable.
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.
If the loan has a payment of points to the bank, ask for that figure in dollars rather than percentages. Loans with points usually have lower interest rates; get out the calculator and factor the points into your mortgage payments.
Down Payments and Loan Insurance
Because of today s housing costs, there are many homebuyers with good incomes and reliable jobs who are still not capable of coming up with a twenty percent down payment. When that is the case, usually the lender will insist that you take you a Private Mortgage Insurance policy, to protect them (the lender) if you default on the loan. Here are some suggested inquiries about down payments and insurance policies:
If PMI is required, 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; it should end when you have paid off equity equal to 20% of the sales price.
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 adjusting the rate. You may not think so, but they need you more than you need them.
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