Shopping for a Mortgage

Shopping for a Mortgage

You’ve found your dream home. Now you have to pay for it. Here are a few tips for getting the best mortgage possible:

Determine your loan amount—Know how much house you can afford. Don’t overextend your budget at the recommendation of bankers, real estate agents, friends, or family. As a rule, your mortgage payment (principle, interest, taxes and insurance) should be 28 percent or less of your gross monthly income.

Shop around—Your local newspaper and the Internet are good places to shop for a loan. Also, investigate thrift institutions, commercial banks, mortgage companies, and credit unions. Rates change daily, so check often.

Obtain loan details—Beyond monthly payments and interest rates, obtain all the costs involved in each loan. Ask for information about the loan amount, loan term, and type of loan as well as the following:

• Interest rates—Ask whether the rates being quoted are the lowest for that day or week. Determine whether you will be seeking an adjustable-rate or fixed-rate loan. And if adjustable, how the variations in interest rates will affect your loan.
• The loan’s annual percentage rate (APR)—The APR takes into account not only the interest rate but also points (fees paid for the loan), broker fees, and other credit charges that you may be required to pay, expressed as a yearly rate.
• Extra fees—Inquire about fees regarding loan origination, underwriting, broker fees, transaction, settlement, and closing costs. Some common closing fees are listed on the Mortgage Shopping Worksheet found at www.ftc.gov.
• Private Mortgage Insurance (PMI)—If you’re not able to pay 20 percent of the home’s purchase price, some lenders require that you carry PMI. If so, make sure this is included in your monthly fee.

Investigate special loan programs—FHA, VA, and Rural loans are special government programs that usually offer lower fees, down payments, and interest rates. If you qualify, you could save a bundle.

Negotiate the best deal—Like most things in life, loans are negotiable. Let lenders know that you’re shopping around and ask them for their best deal. Be sure they don’t waive or reduce some fees just to raise others.

Lock-in your loan—Once satisfied, a written lock-in will protect your loan from rate increases or added points. If there is a fee for this service, see if it can be refunded at closing. The negative? If rates decrease, you may be stuck unless you can negotiate the better rate.

John Nardini is a frequent contributor.

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