also understand how discount points work. Discount points represent prepaid interest. Typically, the more points you pay, the lower your interest rate on the loan. Ask for points to be quoted to you as a dollar amount-rather than just as the number of points-so you will know how much you have to pay. “If you think you’re going to stay in the home 10 or 15 years and you’re looking at a 30-year fixed mortgage, the idea of paying points is pretty attractive because each point is 1% of the loan,” says McBride. “You benefit from the lower interest for many years, far offsetting the initial cost of the points.”
Remember, the quote you receive will be based on your intended down payment. Some lenders require a down payment of 20%, but with new mortgage options, such as hybrids, many prospective buyers can put less down. Make sure you understand upfront what your down payment terms will be, so that there are no surprises at the closing.
SHOPPING FOR A LENDER
Searching for the right lender can be complicated, so it’s best to get a second or third opinion before you decide. The first rule of thumb is to “go to a reputable lender,” says Peter Greene, director of marketing at Neighborhood Housing Services of New York City (www.nhsnyc.org).”Make sure to go to different lenders-lenders that you’ve heard of before.”
To find a lender you can trust, ask family, friends, and co-workers who have recently bought or sold property. You can also check with local real estate agents to get a list of potential lenders in your area.
“The important thing is to get someone you can trust because that [lender] is going to be the one to sit down and qualify the consumer,” says Thomas M. Stevens, president of the National Association of Realtors. This is where the prequalification process comes in. When you get loan prequalification the lender tells you how much you can afford, says Glink. “But, then you take [the process] a step further and actually apply for the loan and the lender commits to funding the loan in writing, provided the house appraises out in value.”
Our experts recommend speaking to three to five lenders. You should consult with commercial lenders, who offer an array of loan products and mortgage brokers and arrange the loan rather than lending it directly. In other words, a broker is the middleman; he or she will research several different lenders and loan options from which you can choose. According to the Federal Deposit Insurance Corp.’s Website, “Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent.” So make sure you understand the nature of your relationship before making any decision.
Credit unions have a reputation for offering lower interest rates on mortgages. In addition, try your local bank as well as online lenders such as www.lendingtree.comor www.ditech.com,which offer consumers competitive rates.
A final option