When Comparing Mortgage Rates, Take Your Time
Buying a home is exciting. But don’t let your excitement get in the way of getting the best deal possible on your mortgage. Believe it or not, most lenders will negotiate their stated mortgage terms, but only when an applicant brings up the subject first. Even if you already have a home and want to refinance or apply for a home equity loan, it never hurts to try negotiating.
To ensure you’re in the best negotiating position, it’s worth your time to learn about the terms you’re likely to encounter during the mortgage lending process. That makes it easier to compare quotes from different lenders. It’s also the only way you’ll know for sure whether you’re getting the best deal. To help out, we’ve included a glossary of terms to our site and we encourage you to check there for more detailed explanations of the mortgage terms mentioned in this article.
Always Shop Mortgage Rates
Just as you shop around for the best deal on a computer or a car, it makes sense to shop around for the best deal on a mortgage. Keep in mind that mortgage companies aren’t the only places that offer mortgages. Many credit unions, banks and thrift institutions are also in the mortgage business. So are mortgage brokers, individuals that work with you and a network of mortgage providers to help match your needs with the best lender. It’s not always obvious whether you’re working with a broker so this is a question you definitely want to ask up front.
Also find out how the broker is paid and by whom. Typically broker fees are paid by the lender that gets your mortgage. But oftentimes broker fees are passed on to the mortgage applicant in the form of extra points. In other words, even though broker fees may be paid by the lender, if you’re not careful, you might end up paying them by paying higher fees for your mortgage. Again, this is another example of why it’s worth your time to learn mortgage terms.
Understand Mortgage Terms
Knowing the interest rate is important but it’s not enough. Rates fluctuate daily and you want the lowest available. Also know whether you’re being quoted a fixed rate or an adjustable rate mortgage. Fixed rates won’t change over the life of the mortgage but adjustable rates will, and you need to know when they’ll change and by how much. You also want to know the loan term. Thirty years is the most common but you can also apply for a 10- or 15-year term.
The APR is not the same as the interest rate and that confuses most people. The APR is made up of the interest rate plus points, broker fees, and other charges calculated on an annual basis.
Be sure to understand every fee being charged, too. There will be many with some due when you apply and others due at closing, but almost all are negotiable.
The amount you put forth as a down payment will alter your mortgage terms. Putting less than 20% down likely will cause you to pay PMI so the more you can put down, the better. Your lender should explain PMI terms so be sure you understand exactly how this affects your monthly payment.
Once you’ve got all the numbers in front of you, it’s time to put on your negotiating hat. While you negotiate keep in mind that lenders are in this business to make money. They’re creative and if they give in on one fee, they’ll likely pad another. That’s why you need to know what you’re talking about. As tiring as it might seem, you’ll want to repeat this whole process with several lenders, and before deciding on one, you’ll want to be certain you’ve compared apples to apples.
When you’re satisfied with a lender’s stated terms, consider locking in your rates for the period of time you think you’ll need to complete closing. There may be a fee for locking in your rates, but the lock in protects you should rates increase over the next 30 – 90 days. Of course rates could decrease, so it’s a gamble.
Fair Lending Act, Something Else to Keep in Mind
Lenders cannot discriminate on the basis of income, race, gender, sexual preference or anything else. It is likewise against the law to refuse a loan to a borrower. Take time to understand your protections under the Fair Housing Act, the Equal Credit Opportunity Act, and the Consumer Credit Protection Act.
Finally, be honest and up front about any negative issues on your credit report. The lender will see them so don’t try to hide them or worse, lie about them. Even with credit problems, getting approved for a mortgage is not impossible. You’ll just have to try a little harder, and perhaps pay a little more.