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How to get the best deal on a mortgage.When shopping for a mortgage, you must be armed with information in order to get the best deal from lenders. Make them prove to you that they are worthy to lend YOU money. Make the lenders apply to you instead of you asking them for a loan. With mortgages, just as in most everything else, EVERYTHING is negotiable. But first you need to know what you are bargaining with.
Consider the factors a loan underwriter looks at when they review a loan package. First and foremost in their mind is "Can this borrower comfortably make the payments?". They will consider these factors.
Credit history is the most important factor most lenders will consider. If your credit history is excellent you will get a lower interest rate than most people. Less than 20% of borrowers fall in to this "A paper" category. Don't get fooled into thinking that you will qualify for the low rates posted on most web sites. These rates are only for "A" borrowers. The vast majority of people fall into the "B-C" credit category, But don't be dismayed if you do not have well established credit. Even if you are like most people and have less than perfect credit, you can still save thousands by negotiating the best deal. When you make contact with a lender or broker, first find out exactly how much money you will need to borrow in order to net a certain amount of cash from a transaction. Here is an example... say you want to borrow $100,000, chances are you will need to borrow around $106,000, to net $100,000. This is because the lenders and others, have to add various fees in order to make money. The vast majority of loans are funded and sold within days and the mortgage banker/broker earns their money by collecting these fees. These can include upfront and backend points ( 1-10% of the GROSS loan amount), origination fee, processing fee, underwriting fee, documentation fee, appraisal fee, title insurance fee, mortgage insurance fee, escrow fee, i-just-wanna-add-a-fee fee, you get the idea.
Be armed with information before you make any commitments. Know what is on your credit report and what your FICO score. Before you submit the full loan application, get a copy of your credit report. If there is any incorrect negative information on your report, write to the credit reporting agency and ask them to remove it. By US law, they have 30 days to verify the information or they have to take it off your report. Many creditors will not respond quickly enough and the derogatory credit must be removed. Other information you need to know is the selling price for homes in your area. You can get "comps" (comparable homes that have sold recently in your area) from your local title company and from the Sunday paper in most areas. Be aware that if you do not have close to good to excellent credit you will not be able to borrow more than 80% of your homes value. As soon as you ask what the fees and interest rate will be, the lender will respond "I don't know, let us run a credit report and we will let you know". At this point you might want to pose a hypothetical question such as " If I had a FICO score of______, what kind of rate could you offer me?" The lender may be able to give you a rate based on the hypothetical question. Then ask the lender to go thru the what the fees are on the loan. Make a note of each of theses fees. Do this with three lenders before you let them check your credit. This is important because every time a lender gets your credit profile, an inquiry is logged on your report. Many inquires will lower your credit score. It can appear to a lender that you are running all over town trying to find someone that will lend you money. After you have gone thru round one with the lenders, compare the hypothetical offers. Here is an example of 3 offers on a $50,000 2nd mortgage over a 15 year term. We will use round numbers for simplicity of the example.
Which lender has the best offer? To find out we need to compute the annual percentage rate (APR) for each loan. You will usually not learn what this actual number is until you sign the loan documents, that's why it is important for you to know this before you get to that stage so there are no surprises. Add the points plus the other fees to the loan amount. Lender 1 (.04 X 50000)+1600 = $3600 Total Loan Amount 53600 @ 15% Lender 2 (.07 X 50000)+2100 = $5600 = Total Loan Amount 55600 @ 14% Lender 3 (.05 X 50000)+$2200 = Total Loan Amount 57500 @ 13.9% Now go to the mortgage Payment Calculator and get the payment for each.
So based on this example Lender 1 has the best deal even though their interest rate is higher. This is even more pronounced if you plan to pay off the loan prior to the end of the 15 year term.
Now the most important thing you can do to get a better deal is very simple... ask for it! That's right, call Lender 1 and just ask for a better deal on the points and fees. Let them know that you are comparing rates and find out if this is the best deal they can offer. In 90% of cases, you will get a point or 2 taken off your loan. Ask if there are any "back points" available to offset the cost of the loan or to lower the rate. Many brokers get points back form the lender after the close of escrow. Find out how they make money on the loans and just ask for a better deal. Ready to get started? Click here to get three mortgage quotes.
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