Before you start considering offers, you need to have a good sense of what kind of deals are available; you need to educate yourself. Today it is very easy to find out what is happening in the mortgage industry. Local newspapers, typically in the Sunday real estate section, include a table of average rates for different types of mortgages. Also, online at sites like http://www.bankrate.com/ you can become aware of different loan products and their pricing.
When it comes to getting a good deal, knowledge can be very powerful. Take notes of where rates are so that you can establish a time frame for the market, whether you think you will be buying a place soon or in the future. This will give you some perspective and help you have an educated conversation with your loan advisor/mortgage banker. If the deals your advisor brings you are not as attractive as what you have seen online or in the newspaper, do not hesitate to ask why. In many cases, you may find that it is because the rates quoted in some ads are for products that will not suit your needs. Or maybe there is something in fine print that makes the deal worse than you initially thought.
It is also important to understand your credit history and how this will affect the rate for which you qualify for your mortgage. Your credit score is a number that the major credit rating agencies calculate for you based on your credit history. Banks will use this number to determine whether they will lend you money and, if so, what kind of interest rate they will charge. A high number means you have good credit; and you will likely qualify for a loan at relatively low interest rates. A low number means you represent a higher risk to banks, and will probably have to pay a much higher interest rate. The difference between a low score and a high score can make a difference of hundreds of dollars in mortgage payments each month. Knowing your score is essential for anyone thinking of getting a mortgage.
There are a number of ways online to get your credit score; http://www.experian.com/ is a common, reliable way. Under a new law passed in 2003, the big three credit bureaus must provide every consumer who asks with a free copy of their credit report (once a year). You can get yours by going directly to http://www.annualcreditreport.com/. Keep in mind that your credit report is not your credit score. Your score is based on a formula calculated from your report.
Unfortunately, you will probably find some incorrect information in your credit report. Since these mistakes often make your credit history look worse than it really is, it is very important that you get any inaccuracies corrected as soon as possible. It is actually not difficult to do this. You can report any errors you find directly to the credit bureau (online) whose report contains the mistake. You should also document your complaint by sending the credit bureau a letter via certified mail. By law, the credit bureaus have to investigate and correct your score within 30 days of receiving your notice.
Another way to improve your deal is to simply ask. It can't hurt to ask for a lower rate, or less points on the loan. Maybe there is room. You will not know unless you ask. You may not be able to get a better interest rate, but particularly when the loan is large, a lender may agree to give you a break with at least some of your closing costs. Closing costs can vary widely, buy thousands of dollars and many of them or negotiable. The most negotiable are application fees, appraisal fees, title fees and title insurance premiums. Do not be afraid to ask about them upfront and don't hesitate to question the amounts.
It can also help the process to ask the lender for an advanced commitment for a particular mortgage at a certain rate before you even start looking for a house. With this type of commitment, you can begin your search with secure knowledge that if and when you find a house you want to buy, you will be able to borrow the money needed with the terms you can afford. Note that this is different from a pre-approval letter, which does not bind any of the terms.
Finally, if you have worked hard to get the best rate and terms for your loan, make sure that you only borrow what you can afford. This sounds obvious, but many banks will lend you more money than you can truly afford based on factors like your credit history. In the scramble for business lenders have grown more willing to loan money to people with unstable credit. Understand what the monthly mortgage payment will be, plus include other regular housing costs such as: taxes, insurance and maintenance. Many experts suggest that your total payment should be somewhere between 28-41% of your gross income. If you are going beyond this guideline, you are possibly stretching yourself too thin.
Similar to all major purchases it is important that you are comfortable with your decision on the mortgage you select. The most important thing to do is find a professional in the industry that you trust. To accomplish this, you should speak with at least 2-3 bankers or mortgage brokers until you find someone that you are comfortable with.
Questions or comments about this article? Contact the author - Mathew Roth