If you’re looking to get active in the U.S. real estate market — whether as an investment, for a place to vacation or a place to call home — there are many factors to weigh when choosing the right mortgage loan for you. Adjustable or fixed rate? Conventional, FHA loan or another?
While selecting the ideal loan for your situation is important, many times choosing the right mortgage lender or broker can be just as vital. A knowledgeable, honest mortgage professional will work with you to secure a loan that meets your needs and long-term financial goals.
Choosing the right home mortgage (especially your first) is a challenge for many homebuyers. You’ll spend a lot of time comparing rates from multiple lenders, but even with historically low interest rates there are a few mortgage costs that can significantly increase the cost of your loan. You can avoid many of these costs by asking the right questions and finding a lender you trust. There are a number of fees and loan components that get bundled up as “closing costs.” It’s not possible to avoid them all entirely, but you can minimize many of them with a little negotiation and know-how.
Points – A point is equal to one percent of your loan amount, added as pre-paid interest. Points will reduce your interest rate, but will only be valuable if you plan on staying in your home for more than 5 – 10 years. It is likely that every dollar counts when you’re buying your home, but if you need to cut your closing costs, a zero-point loan is a great option.
Closing costs – Many of the non-recurring costs of your mortgage will be grouped together as closing costs. Some of them, like appraisals and inspections, you can’t avoid paying. Others will have some room for negotiation, so be sure to ask any prospective lenders for a Good Faith Estimate as your first move. This estimate will list all of the costs associated with the loan.
Once you have your good-faith estimates in hand, you can begin to negotiate with various lenders. Be on the lookout for excessive processing in items like your application fee, underwriting fee, and loan processing fee.
Ask for the HUD-1 – Before you close your loan, you’ll want to make sure you have all the information you need. The HUD-1 Settlement Statement is an itemized list showing all the charges assigned to both the buyer and the seller of a home, providing a clear picture of all parties’ responsibilities. It will show a complete list of incoming and outgoing funds, including fees associated with the purchase but paid before closing. The HUD-1 is typically distributed to all parties at least one day prior to closing. Be sure to review the document carefully to catch any errors before you close on the loan. Reviewing your HUD-1 will help you fully understand your loan and ensure you’re paying exactly what you owe.
As in most business transactions, the most important thing is asking the right questions and building trust with your mortgage lender. Do not be afraid to ask your loan officer for justification of each fee on your estimate or how you can reduce third-party fees on your loan. Be ready for resistance from your lender, but make sure you have a full understanding of all the costs and fees associated with your loan before you get to closing.