Mortgage lenders use their own criteria to set the terms for their loans. The quotes you receive from different financial institutions may vary widely. A bank or credit union with which you already have a relationship, may offer you better terms than a financial institution that you have never done business with before. In some cases, you may qualify for more favorable terms through a government loan program. Before you accept a mortgage offer, do some comparison shopping and consider all the factors that could influence the total cost.
Things to Focus on When Comparing Loan Offers
Each lender will quote you an interest rate. When comparing offers, be sure to read the fine print. A lender that quotes you a low interest rate may require you to purchase discount points to qualify for that rate. That means that you would have to pay extra money at closing to get the low interest rate. Another lender might offer you the same rate, or a similar one, without the need to purchase discount points.
If you are comparing adjustable-rate mortgages, you will not be able to predict a future interest rate, but you should understand the general parameters. Look for information on how long the introductory rate would last, how often the interest rate would change after that and how high it could go.
Buying a house comes with mortgage origination, underwriting, appraisal and home inspection fees, as well as numerous other costs that can add up to thousands of dollars. Each lender should provide you with a loan estimate that breaks down all the associated fees. Lenders use a standard form, which makes it easy to make an apples-to-apples comparison. Review those documents carefully when comparing loan offers.
The annual percentage rate is a percentage that takes into account the interest rate and other fees. This can give you a more accurate understanding of the total cost of a mortgage than the interest rate alone.
Look out for things that might cost you more down the road. For example, some loans require a balloon payment or a large sum of money that would be due at a future date, in exchange for a lower interest rate. A mortgage may have a prepayment penalty that would cost you extra money if you pay off the loan early.
Consider Getting Help From a Broker
A mortgage broker can make it easy to compare offers from several lenders. A broker can collect your information, submit it to several companies and gather multiple quotes. A mortgage broker may be able to find you a good deal from a wholesale lender that you would not be able to qualify for on your own. Working with a broker could save you a lot of time and effort, but you might have to pay a fee for that service. Find out up front how much the fee would be to decide if the convenience would be worth the extra cost.