Mortgage Loans: Always Shop Around
Price shopping is a big thing. In fact, most people shop online to find the right brand and then go from store to store hunting the best deal. However, many do not do the same thing when looking for mortgage loans. That is a big mistake!
Different lending institutions can provide you with different rates and terms because not all mortgage loans are alike. Before buying a home, you will definitely want to shop around for the best mortgage loan for your situation. Doing so can save you thousands of dollars over the course of your loan.
Different Kinds of Lenders
Although you may think of a national bank as your only option, there are many different kinds of lending institutions that offer mortgage loans. These include:
- Nationally recognized banks known as Commercial Banks
- Mortgage Companies
- Credit Unions
- Mutual Savings Banks
- Savings and Loan Associations
Lenders from these different institutions will offer different mortgage loans with different terms and rates because each of these institutions follows a different set of requirements.
Where to Start Looking for Mortgage Loans
There are many ways to find a good mortgage loan. However, most people start with a bank where they currently do business. Why? These banks want to keep your business and may offer a better deal. Other ways to find a good lending institution include:
- Ask friends and family
- Recommendation from your real estate agent
- Online search
As you talk with different lenders, you should feel like they care about you and want your business. If you don’t feel this way, then move onto another bank. Since you will be spending a lot of money over the years with the institution, you will want to feel like a special customer.
Pay Attention to Fees
Although the interest rate of the loan is important, it is not the only thing that will cost you money. Loan fees can really add up. Here are the fees to look at when determining if a loan is right for you:
- Interest rate: Be sure to know if the rate is fixed or adjustable. Adjustable rates change after a period of time. If they go up, your mortgage payment will go up with it.
- APR: This is the annual percentage rate. It figures in the rate and fees to give you the “real” interest rate you will be paying per year.
- Points: This is upfront money that you pay in order to get the loan you want. Paying points can lower your interest rate. A point is equal to 1% of your loan amount.
- Down Payment: Depending on the type of loan, this can be 0% for VA loans and up to 20% for conventional loans.
- PMI: Private Mortgage Insurance is often required for buyers that put down less than 20%. PMI costs between 0.5% to 1% of the loan annually.
- Other fees: There are a host of other fees that can add up including closing costs, application fees, loan origination fees, broker fees, appraisal fees, and underwriting fees. Some of these fees are paid right away while others can be put into the loan.
If you do not understand the fees, be sure to ask the banker to explain them to you.
Making a Decision
Look at each loan individually by looking at all the costs for each loan. Feel free to talk with bankers about making changes. You can:
- Ask for a better rate
- Ask for reduced fees
- Ask for a different type of loan
Once you have the best numbers possible from each institution, it is time to determine which one works best for you. Once you have chosen, ask the lender to lock-in the deal so that you have time to find the house of your dreams. Be sure the lock-in specifies the interest rate, points, and time period of the lock-in.
There are many different ways to obtain mortgage loans, so be sure to look around and find what is best for you. If you’d like to talk with us about lenders we’ve worked with in the past or how to find the best mortgage loans, feel free to contact us.