BBB Column: Tips for Choosing a Mortgage Lender | Business
This year’s housing market is expected to be just as competitive as in 2021. Home listings are down 60% from before the COVID-19 pandemic. With fewer homes for sale and rumors of rising interest rates, homes are selling faster than ever.
If you’re looking to buy a new home, it’s more important than ever to be prepared. Potential buyers can make their offer more competitive by getting pre-approved for financing before they even bid on a home, letting sellers know a buyer is serious and providing assurance that the sale will close without delay. problem.
“It’s a great idea to shop around for a mortgage lender before you find the right home,” said Mechele Agbayani Mills, president and CEO of BBB Central East Texas. “It allows you to find the best deals and better understand how mortgages work.”
Whether you are buying a home, refinancing your home or taking out a home equity loan, BBB advises the following to help you make your search for a mortgage lender a success.
Know how much you can spend in advance. Before requesting 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 beforehand.
Know your loan options. Loan options include loan terms, interest rate type, and loan type. Loan tenure refers to the term of the loan, which can be 15 or 30 years. Shorter loans generally have higher monthly payments with lower interest rates. Interest rate types can be fixed or adjustable. Fixed rate loans are less risky but carry higher interest rates. Adjustable rate mortgages (ARMs) have lower interest rates initially, but rates can change over time. Loan types can be conventional or part of a government program. Understanding the options will help you choose the best loan for your situation.
Understand the difference between a broker and a lender. According to ConsumerFinance.gov, a lender is a bank or other financial institution that lends you money directly. A broker acts as a middleman, comparing loan options on your behalf. The Federal Trade Commission adds, “Whether you are dealing with a lender or a broker is not always clear. Some financial institutions act as both lenders and brokers. And most broker ads don’t use the word “broker”. Therefore, be sure to ask if a broker is involved. You’ll want to know this because brokers generally receive a service fee separate from the lender’s fee.
Get information from several lenders and brokers before making a decision. Get as much information as possible about each lender. Keep your options open to begin with, as different lenders may offer different rates, advises the FTC. Be sure to ask about interest rates, loan types, annual percentage rates, points, down payments, mortgage insurance, and any other fees. This will help you get a clear picture of the real cost of the mortgage.
Understand if you need to pay points. Your mortgage lender will likely give you the option of paying rebate points. Mortgage points are fees you pay to a lender to lower the interest rate on a mortgage. Typically, one discount point equals 1% of the mortgage amount and will reduce your interest rate by 0.25%. Depending on how long you plan to keep your home and mortgage, this extra cost may or may not make sense. This calculator will help you figure that out.
Work with a broker? Make sure they find you the best deal. If you prefer to hire a broker to do the shopping for you, be aware that although brokers have access to multiple lenders, they are not obligated to find the best deal for you unless they sign a contract to act at agent title.
Be prepared to negotiate the best deal. Loan officers and brokers are allowed to retain some or all of the excess (the difference between the lowest available price and any higher price you agree to pay) from a loan as additional compensation. This means that you may be able to negotiate a lower price than they originally offered. The best way to negotiate is to ask the broker or lender to give you a written list of all costs and fees included in the loan. Then ask them if they will reduce or waive one or more of the fees altogether. You can also show them a competitor’s offer to see if they will give you a better deal.
Watch out for scams. Researching a mortgage lender will help you get a general idea of how much a loan will cost, which will help you spot and avoid deals that seem too good to be true. Beware of unsolicited calls and e-mails offering great mortgage rates or “no-fee” loans. Never give in to high pressure sales tactics. ConsumerFinance.gov warns of a phishing scam where crooks attempt to embezzle your closing costs and down payment by suggesting, just before your loan closes, that you transfer the money to a fraudulent account.
— BBB is a business-supported non-profit organization that sets and maintains high standards for fair and honest business behavior. Most of BBB’s consumer services are free. BBB provides objective advice, free BBB business profiles on over 5.3 million companies, 11,000 charity ratings, dispute resolution services, alerts and educational information on topics affecting market confidence . Visit bbb.org for more information. BBB Serving Central East Texas was founded in 1985 and serves 19 counties.