(BBB) - If you’re ready to buy a home, refinance your home, or take out a home loan, you’ll need a mortgage. Mortgage lenders are generally willing to compete for your business, which means shopping around, comparing prices, and negotiating deals can save you thousands of dollars.
If you want to get the best deal possible, be sure to compare all the costs and understand how mortgages work. BBB recommends the following tips to help you succeed in your search for a mortgage lender.
How to buy from a mortgage lender:
- Know how much you can spend up front. Before asking a lender for information, it’s a good idea to find out 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 in advance.
- Know your loan options. Loan options include loan terms, type of interest rate, and type of loan. Loan term 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. The types of interest rates can be fixed or adjustable. Fixed rate loans are less risky but carry higher interest rates. Adjustable Rate Mortgages (ARMs) have lower interest rates to start with, but the rates can change over time. The types of loans 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 loans you money directly. A broker acts as an intermediary, comparing loan options on your behalf. The Federal Trade Commission adds, “Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most broker advertisements do not use the word “broker”. Therefore, be sure to ask if a broker is involved. You’ll want to know this since brokers typically receive a service fee that is separate from the lender’s fees.
- Obtain information from several lenders and brokers before making a decision. Get as much information as possible from each lender. Keep your options open, for starters, as different lenders may offer different rates, advises the FTC. Be sure to educate yourself about interest rates, loan types, annual percentage rates, points, down payments, mortgage insurance, and all other fees. This will help you get a clear picture of the true cost of the mortgage.
- Work with a broker? Make sure they find you the best deal. If you’d rather hire a broker to do the shopping for you, be aware that while brokers have access to multiple lenders, they don’t have to find the best deal for you unless they sign a contract to act as that agent.
- Be prepared to negotiate the best deal. Loan officers and brokers are allowed to keep some or all of the excess (the difference between the lowest price available 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 what they initially offer you. The best way to negotiate is to ask the broker or lender to give you a written list of all the costs and fees included in the loan. Then ask them if they will reduce or waive one or more fees altogether. You can also show them a competitor’s offer to see if they’ll give you a better deal.
- Beware of scams. Shopping for a mortgage lender will help you get a general idea of the cost of a loan, which will help you spot and avoid offers that sound too good to be true. Beware of unsolicited calls and emails that offer you great rates on a “no-cost” mortgage or loans. Never give in to high pressure sales tactics. ConsumerFinance.gov warns of a phishing scam where crooks attempt to hijack your closing costs and down payment by suggesting, just before your loan closes, that you transfer the money to a fraudulent account.
Visit the Consumer Finance Protection Bureau’s Mortgage page to learn more about how mortgages work. Learn about reverse mortgages by reading BBB tip: Understanding Reverse Mortgages.
When shopping for a lender, always look for companies that meet BBB accreditation standards and BBB standards for trust.
Find a reputable mortgage lender near you.
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