Only loan shopping will help you get the best home financing deals
Best home financing deals require shopping, comparing, and negotiating may save you thousands of dollars. Begin by getting copies of your credit reports to make sure the information in them is accurate.
When new home loan shopping, 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.
Talk to your current lender
If you plan to refinance, you may want to start with your current lender. That lender may want to keep your business, and may be willing to reduce or eliminate some of the typical refinancing fees. For example, you may be able to save on fees for the title search, surveys, and inspection. Or your lender may not charge an application fee or origination fee. This is more likely to happen if your current mortgage is only a few years old, so that paperwork relating to that loan is still current. Again, let your lender know that you have started new home loan shopping and want the best deal.
Compare loans before deciding
When doing new home loan shopping, compare all the terms that different lenders offer – both interest rates and costs. Remember, shopping, comparing, and negotiating can save you thousands of dollars.
Lenders often give a fair estimate within a few days of receiving your loan application. You can ask your lender for an estimate of the closing costs for the loan. The estimate should give you a detailed approximation of all costs involved in closing. Review these documents carefully and compare these costs with those for other loans.
A good tip to remember when doing new home loan shopping is, make sure the interest rate your lender offers you is the rate you get when you close the loan, ask about a mortgage lock-in (also called a rate lock or rate commitment). Any lock-in promise should be in writing. Make sure your lender explains any costs or obligations before you sign.
Get information in writing
Ask for information in writing about each loan you are interested in before you pay any nonrefundable fee. It is important that you read this information and ask the lender or broker about anything you don’t understand. You may want to talk with financial advisers, mortgage brokers, other trusted advisers, or your lawyer.
Use the the Internet to shop
The Internet is a good place to start shopping for a loan. You can usually find information on interest rates and points offered by several lenders.
Since rates and points can change daily, you’ll want to check information sources often when you are searching for best home financing deals.
Be careful with advertisements
Any initial information you receive about mortgages probably will come from advertisements, mail, phone, and door-to-door solicitations from developers, real estate brokers, mortgage brokers, and lenders. Although this information can be helpful, keep in mind that these are marketing materials – the ads and mailings are designed to make the mortgage look as attractive as possible. These advertisements may play up low initial interest rates and monthly payments, without emphasizing that those rates and payments could increase substantially later. So get all the facts and make sure any offers you consider meet your financial needs.
Any ad for an ARM that shows an introductory interest rate should also show how long the rate is in effect and the annual percentage rate, or APR, on the loan. If the APR is much higher than the initial rate, that is a sign that your payments may increase a lot after the introductory period, even if market interest rates stay the same.
Remember one important tip, if there is a big difference between the initial interest rate and the APR listed in the ad, it may mean that there are high fees associated with the loan.
Choosing a mortgage may be the most important financial decision you will make. You should get all the information you need to make the right decision. Ask questions about loan features when you talk to lenders, mortgage brokers, settlement or closing agents, your lawyer, and other professionals involved in the transaction – and keep asking until you get clear and complete answers.
Your home may be your most valuable financial asset, so you want to be careful when choosing a lender or broker and specific mortgage terms. Remember that, along with the potential benefits to refinancing, there are also costs. When you refinance, you pay off your existing mortgage and create a new one. You may even decide to combine both a primary mortgage and a second mortgage into a new loan.
Refinancing calculators
Using refinancing calculators are important when you are doing new home loan shopping. Many online mortgage calculators are designed to calculate the effect of refinancing your mortgage. These calculators usually require information about your current mortgage (such as the remaining principal, interest rate, and years remaining on your mortgage), the new loan that you are considering (such as principal, interest rate, and term), and the upfront or closing costs that you will pay for the loan. Some may ask for your tax rate and the rate of interest you can get on investments (assuming you will invest your savings). Refinance calculators will show the amount you will save compared with the costs you will pay, so that you can determine whether the refinancing offer is right for you.
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