Mortgage Loan Financial Advisor's are
mortgage professionals working hard for you to get the
best home loan mortgage possible, with a good low interest rate,
and low closing costs & favorable loan terms.
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.
30-Year Mortgage
Loan vs 15-Year Mortgage Loan
Generally, a 30-year mortgage loan will have lower
monthly payments than a 15-year mortgage loan. If you
commit to a 15-year mortgage loan, you will pay significantly
less in total loan interest over the life of your home mortgage
loan, but your monthly mortgage payments will be higher.
As a home buyer, you will need to consider the significance
of committing to higher monthly mortgage payments when
accepting a 15-year loan term. Can you consistently meet
those higher monthly mortgage payments over time? Look
at the table below to understand the difference in the
mortgage loan monthly payments.
|
Advantages
of Mortgages |
Considerations
of Mortgages |
| 15-Year |
Lower Overall Mortgage Cost |
Higher Monthly Payment |
| Builds Equity Faster |
Must Qualify for Higher Monthly Payment |
| You have Debt for Only 15 Yrs |
You have Less Cash for Other Expenses |
| Lower Interest Rate |
Less Money toward Tax Deductions |
| 30-Year |
Lower Monthly Payment |
Higher Overall Mortgage Cost |
| Qualifying is Easier |
You Pay More in Total Loan Interest |
| More Cash for Other Expenses |
You have Debt for 30-Years |
| Bigger Tax Deductions |
Higher Interest Rate |
Obtain Information from Several Lenders
Home loans are available from several types of lenders--thrift
institutions, commercial banks, mortgage companies,
and credit unions. Different lenders may quote you different
prices, so you should contact several lenders to make
sure you’re getting the best price. You can also
get a home loan through a mortgage broker. Brokers arrange
transactions rather than lending money directly; in
other words, they find a lender for you. A broker’s
access to several lenders can mean a wider selection
of loan products and terms from which you can choose.
Brokers will generally contact several lenders regarding
your application, but they are not obligated to find
the best deal for you unless they have contracted with
you to act as your agent. Consequently, you should consider
contacting more than one broker, just as you should
with banks or thrift institutions.
Whether you are dealing with a lender or a broker may
not always be clear. Some financial institutions operate
as both lenders and brokers. And most brokers’
advertisements do not use the word "broker."
Therefore, be sure to ask whether a broker is involved.
This information is important because brokers are usually
paid a fee for their services that may be separate from
and in addition to the lender’s origination or
other fees. A broker’s compensation may be in
the form of "points" paid at closing or as
an add-on to your interest rate, or both. You should
ask each broker you work with how he or she will be
compensated so that you can compare the different fees.
Be prepared to negotiate with the brokers as well as
the lenders.
Obtain All Important Cost Information
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.
The following information is important to get from each
lender and broker:
Rates
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 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.
Points
Points are fees paid to the lender or broker for the
loan and are often linked to the interest rate; usually
the more points you pay, the lower the rate.
Check your local newspaper for information about rates
and points currently being offered.
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.
Fees
A home loan often involves many fees, such as loan origination
or underwriting fees, broker fees, and transaction,
settlement, and closing costs. Every lender or broker
should be able to give you an estimate of its fees.
Many of these fees are negotiable. Some fees are paid
when you apply for a loan (such as application and appraisal
fees), and others are paid at closing. In some cases,
you can borrow the money needed to pay these fees, but
doing so will increase your loan amount and total costs.
"No cost" loans are sometimes available, but
they usually involve higher rates.
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 the PMI
premium is included.
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-rate 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 loan-terms you 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. If that
happens, 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.
The Mortgage Shopping Worksheet that follows may also
help you. Take it with you when you speak to each lender
or broker and write down the information you obtain.
Don’t be afraid to make lenders and brokers compete
with each other for your business by letting them know
that you are shopping for the best deal.
Fair Lending Is Required by Law
The Equal Credit Opportunity Act prohibits lenders from
discriminating against credit applicants in any aspect
of a credit transaction on the basis of race, color,
religion, national origin, sex, marital status, age,
whether all or part of the applicant’s income
comes from a public assistance program, or whether the
applicant has in good faith exercised a right under
the Consumer Credit Protection Act.
The Fair Housing Act prohibits discrimination in residential
real estate transactions on the basis of race, color,
religion, sex, handicap, familial status, or national
origin.
Under these laws, a consumer cannot be refused a loan
based on these characteristics nor be charged more for
a loan or offered less favorable terms based on such
characteristics.
Credit Problems? Still Shop, Compare, and Negotiate
Don’t assume that minor credit problems or difficulties
stemming from unique circumstances, such as illness
or temporary loss of income, will limit your loan choices
to only high-cost lenders.
If your credit report contains negative information
that is accurate, but there are good reasons for trusting
you to repay a loan, be sure to explain your situation
to the lender or broker. If your credit problems cannot
be explained, you will probably have to pay more than
borrowers who have good credit histories. But don’t
assume that the only way to get credit is to pay a high
price. Ask how your past credit history affects the
price of your loan and what you would need to do to
get a better price. Take the time to shop around and
negotiate the best deal that you can.
Whether you have credit problems or not, it’s
a good idea to review your credit report for accuracy
and completeness before you apply for a loan.
Glossary
Adjustable-rate loans, also known as variable-rate
loans, usually offer a lower initial interest rate than
fixed-rate loans. The interest rate fluctuates over
the life of the loan based on market conditions, but
the loan agreement generally sets maximum and minimum
rates. When interest rates rise, generally so do your
loan payments; and when interest rates fall, your monthly
payments may be lowered.
Annual percentage rate (APR) is the cost of credit
expressed as a yearly rate. The APR includes the interest
rate, points, broker fees, and certain other credit
charges that the borrower is required to pay.
Conventional loans are mortgage loans other than those
insured or guaranteed by a government agency such as
the FHA (Federal Housing Administration), the VA (Veterans
Administration), or the Rural Development Services (formerly
know as Farmers Home Administration, or FmHA).
Escrow is the holding of money or documents by a neutral
third party prior to closing. It can also be an account
held by the lender (or servicer) into which a homeowner
pays money for taxes and insurance.
Fixed-rate loans generally have repayment terms of
15, 20, or 30 years. Both the interest rate and the
monthly payments (for principal and interest) stay the
same during the life of the loan.
The interest rate is the cost of borrowing money expressed
as a percentage rate. Interest rates can change because
of market conditions.
Loan origination fees are fees charged by the lender
for processing the loan and are often expressed as a
percentage of the loan amount.
Lock-in refers to a written agreement guaranteeing
a home buyer a specific interest rate on a home loan
provided that the loan is closed within a certain period
of time, such as 60 or 90 days. Often the agreement
also specifies the number of points to be paid at closing.
A mortgage is a document signed by a borrower when
a home-loan is made that gives the lender a right to
take possession of the property if the borrower fails
to pay off the loan.
Overages are the difference between the lowest available
price and any higher price that the home buyer agrees
to pay for the loan. Loan officers and brokers are often
allowed to keep some or all of this difference as extra
compensation.
Points are fees paid to the lender for the loan. One
point equals 1 percent of the loan amount. Points are
usually paid in cash at closing. In some cases, the
money needed to pay points can be borrowed, but doing
so will increase the loan amount and the total costs.
Private mortgage insurance (PMI) protects the lender
against a loss if a borrower defaults on the loan. It
is usually required for loans in which the down payment
is less than 20 percent of the sales price or, in a
refinancing, when the amount financed is greater than
80 percent of the appraised value.
Thrift institution is a general term for savings banks
and savings and loan associations.
Transaction, settlement, or closing costs may include
application fees; title examination, abstract of title,
title insurance, and property survey fees; fees for
preparing deeds, mortgages, and settlement documents;
attorneys’ fees; recording fees; and notary, appraisal,
and credit report fees. Under the Real Estate Settlement
Procedures Act, the borrower receives a good faith estimate
of the loan closing costs at time of loan application, or within
3-days of application. The good faith loan cost estimate lists
each expected cost, either as an amount or a range.
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