Interest rates are still low, keeping consumer’s interest in mortgage loans high. If you’re considering a new mortgage loan, either to purchase a home or to refinance your current home, keep these tips from the National Association of Mortgage Brokers (NAMB) in mind:
1) Be cautious of bargain loans. If a loan seems to good to be true, it probably is. Be critical of limited time offers, “No Cost” loans, or loans that claim no credit is no problem.
2) Shop around. Compare the total cost of the loan. This starts by comparing the interest rates offered, but check out the closing costs as well. The most important costs to compare are the loan costs. Next, the Pre-Paids vary depending on the closing date, so make sure all of your estimates use the same closing date. For a purchase, the seller usually chooses the title company, so don’t be fooled by a low title estimate – you’ll pay the same title, tax, and recording fees no matter which lender you chose.
3) Think before you act. Avoid lenders who ask for upfront fees to cover your first loan payment. Always pay by check – never pay cash for an appraisal, credit report, or application fee. Make the check payable to the company, not the loan officer.
4) Ask questions. Make sure you know the total cost of the loan, the annual percentage rate, the total monthly payment, and when the loan must be paid off. Find out if there are any pre-payment penalties, how much and when they apply, and if you are paying for mortgage insurance.
5) Negotiate. Don’t agree to a loan that includes products you don’t want or need, like credit, life insurance, etc. Don’t let the promise of extra cash or lower payments cloud your judgement about weather the loan is worth the costs.
6) Don’t sign anything until you understand what it says. Get copies of everything, and question any costs that have changed since your original estimate.
7) Understand the loan terms. If the payment sounds small, be sure you understand why. Get the details about prepayment penalties, balloon payments, and adjustable rates. If the rate is adjustable, be sure you understand when it can be adjusted, which index it is tied to, and what the adjustment caps are.