If you’re finally ready to buy a house and you’re starting to look for a mortgage loan, the wide range of options available can be daunting. Here are some tips you can use to find the best loan offer and connect with the right mortgage lender.
Meet with Several Different Lenders
It’s highly recommended that you shop around for mortgage lenders. As with any major purchase ― and buying a home is probably the largest purchase you will ever make ― it’s not advisable to go with the first mortgage lender you find. You do not want to rush through this process. An Internet search may be a good place to start, but you also shouldn’t be afraid to meet face-to-face with several different mortgage lenders to inquire about the details of the loans they provide. [See related article “Preparing to Meet with a Mortgage Lender”] If you aren’t sure whether the mortgage lenders you meet are giving you the whole picture, you may want to consider using a mortgage broker who can use their contacts to match you with a mortgage lender that fits your financial needs.
Compare Offers
Do a cost-comparison between mortgage lenders on the interest rates, APR (annual percentage rate), mortgage points, closing costs, and other fees that each mortgage lender charges. Consider the loan term lengths as well as which costs must be paid up-front versus what will be rolled into the loan. If you’re comparing between a 15-year mortgage and a 30-year mortgage with the same interest rate, note that a shorter loan term will save you money on interest payments overall. [See related article “15-Year vs. 30-Year Fixed Mortgages”]
Ask About Penalties and Fees
Find out what kind of penalties the mortgage lender charges for irregularities, such as late payments or paying off the balance early (a.k.a. prepayment). Most mortgage lenders will give you a grace period between one missed payment and any negative repercussions. Once you are five years into the loan, most mortgage lenders will let you pay off your balance early without incurring prepayment penalties. If you don’t plan on paying off the loan ahead of time, know whether you’ve signed onto a balloon mortgage, which starts with low initial monthly payments and then becomes due in full.
Negotiate Loan Terms
Finally, you might be surprised how willing some mortgage lenders are to negotiate interest rates and loan terms (depending on your credit rating and other factors). While mortgage lenders mostly expect to negotiate with brokers, an informed homebuyer may be able to bargain for more favorable terms on their own behalf.