Each June, the U.S. observes National Homeownership Month, a celebration of the American Dream. Nearly all homeowners will need some type of mortgage to finance the purchase of their home, so if you are looking to buy a new home, you need to be prepared.
Prospective buyers can make their offer more competitive by getting preapproved for financing before even bidding on a house. That means more home buyers are shopping for a mortgage lender first. Whether you are buying a home, refinancing your home, or taking out a home equity loan, follow these tips to help make your search for a mortgage lender a success:
Know how much you can spend upfront.
Before you ask for information from a lender, it’s a good idea to know how much you can spend on a loan and the maximum monthly payment you can afford. This information will be a key part of your negotiations, so review your budget ahead of time.
Get to know your loan options.
Loan options include loan terms, interest rate type, and the loan type. The loan term refers to the length of the loan, which may be 15 or 30 years. Shorter loans usually have higher monthly payments with lower interest rates. Interest rate types may be fixed or adjustable. Loan types may be conventional or part of a government program. Understanding the options will help you choose the best loan for your situation.
Get information from multiple lenders and brokers before making a decision.
Get as much information from each lender as you can. Keep your options open to begin with, since different lenders may offer different rates, advises the FTC. Make sure you ask about interest rates, loan types, annual percentage rates, points, down payments, mortgage insurance, and all other fees. This will help you get a clear view of the actual cost of the mortgage.
Be prepared to negotiate the best deal.
Loan officers and brokers are allowed to keep some or all of the overages (the difference between the lowest available price and any higher price you agree to pay) of a loan as extra compensation. This means you may be able to negotiate a price lower than what they initially offer you. The best way to negotiate is to have the broker or lender give you a written list of all of the costs and fees included in the loan. Then, ask if they will reduce or waive one or more of the fees. You can also show them a competitor’s offer to see if they will give you a better deal.
Watch out for scams.
Shopping around for a mortgage lender will help you get a general idea of how much a loan costs, which will help you spot and avoid any offers that seem too good to be true. Be wary of unsolicited calls and emails offering you great rates on a mortgage or “no-cost” loans. Never give in to high pressure sales tactics.
For more information on buying, selling, building or improving your home, visit BBB’s Home HQ at BBB.org/HomeHQ. If you spot a scam, whether you’ve lost money or not, report it to BBB’s ScamTracker at BBB.org/ScamTracker.