MORTGAGE SHOPPING

How do you get the best deal on a mortgage? The same way you do with any other product: go mortgage shopping. Just like a car, a mortgage is a consumer product, and the price and terms are things that you may be able to negotiate.

Types of mortgage lenders:

There are a variety of lenders for mortgages: banks, mortgage companies, thrift institutions, and credit unions. Contact several mortgage lenders; you'll often find that they will give you different quotes. That's the first step in mortgage shopping.

Many home buyers prefer to deal with independent mortgage brokers when shopping for a mortgage. Mortgage brokers usually have contacts with several lenders, so the broker may be able to find you a deal that you couldn't on your own. But the broker is not obligated to get you the best deal, unless he or she has contracted with you to be your agent. So, the best route is to interview at least a few mortgage brokers before deciding on one.

You should also know that most brokers do not advertise themselves as such. When you contact a mortgage lender, ask if a broker is involved. This is important because a mortgage broker may add an additional cost to your mortgage in terms of points, a higher interest rate, or a separate charge. This isn't a scam, as the broker needs to make a living, just like anyone else. Don't be shy about asking the broker how he or she is being compensated. Use this information to compare the fees charged by the various brokers you interview. And recognize that brokers are often willing to negotiate their fees. If you don't ask for something, you usually don't get it; that's another rule in mortgage shopping.

Mortgage costs:

Before pursuing a mortgage, you should know how much you're willing to spend as a down payment. The larger the down payment, the more money you'll save over the term of your mortgage.

You should also know what your credit score is. A bad credit score, or even just a low credit score, can have a tremendous effect on the cost of your mortgage. Obtain a copy of your credit report from a credit reporting agency, and look for any errors.

Next, ask your mortgage lender or broker about:

Mortgage Rates:

Ask each lender or broker you interview for a list of the current mortgage rates. Also ask if those rates are the lowest for that day or for the week, as rates change frequently.

Ask if the rate you're being quoted is for a fixed-rate mortgage, or an adjustable rate mortgage (ARM). When rates go up, so do payments on an adjustable rate mortgage, but payments don't always go down when interest rates go down. Ask your lender or broker if your monthly payment will go down along with interest rates.

Also ask you lender or broker for the annual percentage rate (APR) for your mortgage. The mortgage rate you're being quoted is not the same as the APR. Factors affecting the annual percentage rate include points, broker fees and other charges you may be paying for.

Mortgage Points:

Points are percentage of the amount you're borrowing, and are paid to the lender as a fee. For example, if you're borrowing $100,000 and the lender is charging two points, that means that you'll pay $2000 in points at your mortgage closing.

If you can afford to pay additional points, you can usually get a lower interest rate by doing so. This will save you money over the term of your mortgage.

Local newspapers usually have information showing what rates and points various lenders are offering. This is a useful tool for mortgage shopping.