Mortgage Information

Like all other products that you buy, a mortgage is a product and the price and terms may be negotiable. Compare the costs involved and the terms of borrowing. Shop, Compare and Negotiate with several lenders to get the best deal. This way, you can save yourself a lot of headache and thousands of dollars.


Shop Around

Get the best financing deal by shopping around. Your local newspaper and the Internet are good sources of information on interest rates and points from several lenders. However, since rates can change daily, be sure to check often while shopping for a loan.

Consider different types of lenders: thrift institutions, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so shop around to make sure you're getting the best price.

You may also consider working with a mortgage broker. Brokers are not lenders. They arrange transactions and may have access to several lenders, so by using them, you may be able to choose from a wider selection of products. Brokers will generally contact several lenders for you, but they will not necessarily try to get the best deal for you, so be sure to contact more than one broker.

Find out whether you are dealing directly with the lender or a broker. This is important because brokers get compensation for arranging the transaction. You will want to find out how much fee is involved so you can compare.


Get All Cost Information

Get all the important cost information from several lenders and/or brokers. Know your price range and how much down payment you can afford then find out all the important cost information, including but not limited, to the monthly payment and interest rate. For the same loan amount, loan term and type of loan, compare the following information from several lenders or brokers:


  • Current interest rate, quoted as % APR (Annual Percentage Rate). The APR includes not just the interest rate, but also points, broker fees and any other charges you may be required to pay, expressed as a yearly rate.
  • Whether the rate is fixed or adjustable
  • If adjustable, how much will the rate and monthly payment vary and, if payment will go down when rates go down.
  • Private Mortgage Insurance (PMI), if required. Lenders normally require 20% of the purchase price as down payment. If down payment is less than 20%, lenders require the buyer to purchase private mortgage insurance or PMI to protect the lender in case the buyer defaults. If PMI is required, find out how much the monthly PMI will be and how long you will be required to carry PMI.


Refer to the Glossary of Mortgage Terms if you are not clear on some of the terms used above.


Get the Best Deal

Ask your lender or broker to write down all the costs associated with the loan. This is called a Good Faith Estimate. Once you have this information, negotiate with the lender or broker to waive or reduce their fees, lower the interest rate or lower the points. Make sure that when they lower one item they are not increasing another item.

Once you are fully satisfied with the terms you've negotiated, you may want to get a written lock-in agreement from the lender or broker. This document will contain the interest rate, number of points and the period the agreement is good for. You may be charged a lock-in fee, but normally, this is refunded at closing.

Lock-ins will protect you from future rate increases. However, if rates fall, you may end up with a less favorable situation. If this happens, try to negotiate a compromise with your lender or broker.


Know your Credit Rating

Before you apply for a loan, review your credit report for accuracy and completeness. You can get a free copy of your credit report from any or all of the following credit reporting agencies:




Since it normally takes a minimum of one month to correct any inaccuracies in your credit report, having a copy of your credit report before you even start the loan application process gives you the chance to correct any inaccuracies or dispute any items before a lender sees your report.

Lenders are normally interested in your FICO score, a number between 300 and 850 which measures your "credit worthiness". Most lenders base approval and the interest rate on your FICO score. The higher the score, the better your chances of getting approval and the lower your interest rate and monthly payment.


FICO scores are based on five general categories

Components of the FICO score    Payment history - 35%
  Amounts owed - 30%
  Length of credit history - 15%
  New credit - 10%
  Types of credit used - 10%



If You Have Less Than Perfect Credit

If your FICO score is low because you do not have enough information in your credit history, such as when you have been using cash to pay for all your purchases, you can still get approval by proving to the lender that you have the income and/or resources to pay off the loan. This is called manual underwriting. This means that the lender will obtain documentation from you to prove your income, your bank account deposits, retirement fund accounts and any other assets that will be available to cover the payments for the loan.

If you've had minor credit problems arising from certain unique situations like illness or temporary loss of income, don't assume that you are limited to only the high-cost lenders. Even if your credit report contains certain negative items, explain your situation to your lender or broker and why you can be trusted to repay the loan.

If you have bad credit that cannot be explained easily, ask what you can do to get a better price. Don't just assume that the only way to get credit is to pay a high price.


Where to Get More Information

If you want more information on mortgages, read the attached document from the U.S. Department of Housing and Urban Development (HUD) - Looking for the Best Mortgage.

For a definition of the most commonly-used terms in the mortgage industry, click on this link Glossary of Mortgage Terms.