Do you know how to shop for a mortgage?
Finding the right lender for your home loan is just as important as finding the home itself. Here’s a rundown of the things you need to look for.
Everyone knows how much time and effort goes into searching for the right home. Between the number-crunching and comparison of features, it is a daunting task, but the effort is worth it when making such a large investment. A great first step is to take a free Homeownership Education class. Many down payment assistance programs require education before closing on a loan, and Michigan State University Extension offers sessions at locations around the state. Another critical step not to overlook is the process of deciding just who is going to finance that investment. There are many organizations that provide mortgage loans, from your local bank or credit union to government agencies and nonprofit community development corporations, and each will offer a slightly different deal. Before you sign on the dotted line, make sure you have done the research and gotten the very best mortgage when financing your new home. The best loan does not always mean the lowest interest rate.
Where to Look
As with any shopping experience, the first step is narrowing your options to a manageable list of candidates. A good place to start, of course, is the bank or financial institution where you currently keep a checking or savings account, but you should do research in the newspapers or online to find other local and national lenders. Additionally, seek out referrals from friends, family or community organizations who may have more specialized advice tailored to your individual homebuying needs. In particular, make sure to seek out any special programs with down payment assistance that might be available for first-time or low- to middle-income homebuyers. This will be especially useful if you find yourself having trouble qualifying for loans with traditional lending sources.
What to Look For
Making smart and organized comparisons is key in any decision-making process. Here, make sure you gather the following information for each lender you consider, making it easy to consider all the relevant factors in getting the best deal.
- Total amount of mortgage loan
- Fixed versus adjustable interest rate (if adjustable, make note of caps, adjustment periods and other terms)
- Amount of down payment required
- Term of the mortgage
- Monthly interest rate
- Annual percentage rate
- Approximate monthly payment amounts
- Prepayment penalty
- Private Mortgage Insurance
Of the above list, the single best point of comparison is probably the annual percentage rate (APR). This is because APR includes the interest, points, broker fees and other miscellaneous costs charged by the lender, telling you the total rate you will be paying, and the truest measurement of how much a loan really costs.
Making The Deal
Aside from the facts on the page, it is important that you have a conversation with your lender to make sure you’re getting the whole picture. When a lender names an initial rate for your loan, you do not have to settle for that. Ask if there are other loan programs, or if another lender has already made you a better offer, ask them to match it. If you have the cash flexibility to pay additional percentage points up front, see if it is possible to lower the rate and monthly payments by doing so. Also, be sure to think of your financial future, and project what things might be like over the life of the loan. If your future income is fixed, for instance, you will definitely want to avoid adjustable rate loans, as their payments are likely to increase over time. Overall, asking these questions will not only show the lender you are an informed consumer, but will give you a sense of what it will be like to work with the lender over the life of your loan.
By approaching your choice of a mortgage loan provider with the same consideration and care you put toward finding your home itself, you will be laying the groundwork for a successful home financing relationship, getting the best available rates, terms and service with a financial institution you feel comfortable working with in the years to come.