To: better business bureau
Has been updated:
If you want to buy a new home, you need to prepare. Prospective buyers can make their offers more competitive by obtaining pre-approval for financing before bidding on a home. This lets the seller know the buyer is serious and gives them peace of mind that the sale will go through without a hitch.
This means that many prospective home buyers turn to mortgage companies before finding the right home. For the best deal, compare all costs and understand how mortgages work. Luckily, you can save thousands of dollars by shopping, comparing prices, and negotiating deals.
Whether you’re buying a home, refinancing your home, or taking out a home equity loan, follow these tips for a successful mortgage search.
How to shop for a mortgage lender
- Know how much you can prepay. Before you ask your financier for information, it’s a good idea to know how much you can afford to spend on a loan and the maximum monthly payments you can accept. Check your budget in advance, as this information is important in negotiations.
- Get to know your loan options. Loan options include loan terms, interest rates, and loan types. Loan term refers to the length of the loan, which can be 15 or 30 years. Shorter loans usually have higher monthly payments even with lower interest rates. Interest rate types can be fixed or adjustable. Fixed rate loans are less risky but have higher interest rates. Variable Rate Home Loans (ARMs) offer lower interest rates, but interest rates can change over time. Loan types can be conventional or part of a government program. Understanding your options will help you choose the best loan for your situation.
- Understand the difference between brokers and lenders. According to ConsumerFinance.gov, a lender is a bank or other financial institution that lends money directly to you. A broker acts as an intermediary and compares loan options on your behalf. The Federal Trade Commission added: Some financial institutions act as both lenders and intermediaries. And most broker advertisements do not use the word “broker”. So be sure to check if the broker is involved. ” Good to know, as brokers usually pay a service fee separate from the lender’s fee.
- Get information from multiple lenders and brokers before making a decision. Get as much information as possible from each financial institution. Keep your options open, as different lenders may offer different interest rates, the FTC advises. Ask about interest rates, loan types, annual rates, points, down payments, mortgage insurance and all other fees. This will help you get a clear picture of the actual cost of your mortgage.
- Understanding if you should pay points. Mortgage lenders may offer the option of paying discount points. Mortgage points are fees you pay lenders to lower interest rates on your mortgage. Usually, 1 discount point is equivalent to 1% of the mortgage amount, and the interest rate is reduced by his 0.25%. Depending on how long you plan to hold your home and mortgage, this additional cost may or may not make sense. This calculator will help you calculate it.
- Do you work with brokers? Let them find you the best deals. If you want to shop with a broker, please know that the broker has access to multiple financial providers, but is under no obligation to find the best deal for you unless you contract as an agent.
- Get ready to negotiate the best deals. The loan officer or broker may retain some or all of the loan overage (the difference between the lowest available price and the highest agreed upon price) as additional compensation. This means that you can negotiate a lower price than the price originally quoted. The best way to negotiate is to have your broker or lender give you a written list of all costs and fees for the loan. Then ask if one or more charges should be reduced or completely waived. You can even show your competitors’ offers to see if they’ll get you a better deal.
- Beware of scams. Researching mortgage lenders can give you a rough idea of how much a loan will cost and can help you spot and avoid offers that seem too good. Beware of unsolicited phone calls or emails offering high interest rates for mortgages or “free” loans. Never give in to high-pressure sales tactics. ConsumerFinance.gov warns of phishing scams, where scammers suggest wire transfers to fraudulent accounts just before a loan is completed to steal the loan completion fee or down payment.
For more information on how mortgages work, visit the Consumer Financial Protection Bureau’s Home Loans page. Learn more about reverse mortgages by reading BBB Tips: About Reverse Mortgages.
When choosing a lender, always look for companies that adhere to the BBB Accreditation Standards and BBB Trust Standards. Find a reputable mortgage lender near you.