Shop, compare and negotiate for a home loan. It can save you a lot.

Get Information from Several Lenders Home loans are available from several types of lenders: savings and loans, banks, mortgage companies and credit unions. Different lenders may quote you different prices. Contact several lenders to make sure you're getting the best price.

You can also get a home loan through a mortgage broker. Brokers find a lender for you. Brokers will generally contact several lenders to find you a loan. However, they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. You should consider contacting more than one broker.

Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. Be sure to ask whether a broker is involved. This is important. Brokers are usually paid a fee for their services that may be separate from and in addition to the lender's fees. A broker's compensation may be in the form of "points." You should ask each broker you work with how he or she will be paid so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.

Find Out All The Costs Get information about mortgages from several lenders or brokers. Know how much down payment you can afford. Find out all the costs. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan. Then compare the loans.

Rates: Ask each lender or broker for a list of its current mortgage interest rates. Ask if the rates quoted are the lowest for that day or week.

• Ask if the rate is fixed or adjustable. When interest rates for adjustable-rate loans go up, generally so does the monthly payment.
• If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will change. Will your payment be reduced when rates go down?
• Ask about the loan's annual percentage rate (APR). The APR shows not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay. It’s shown as a yearly rate.

Points are fees paid to the lender or broker for the loan. They are often linked to the interest rate. Usually the more points you pay, the lower the rate.

• Check the newspaper for information about rates and points currently offered.
• Ask for points to be quoted to you as a dollar amount rather than just as the number of points. Learn how much you will have to pay.

Fees These include loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. "No cost" loans are sometimes available but they usually involve higher rates.

• Ask what each fee includes. Several items may be lumped into one fee.
• Ask for an explanation of any fee you do not understand.

Down Payments and Private Mortgage Insurance Some lenders require 20% of the home's purchase price as a down payment. If a 20% down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI). This protects the lender if the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be much smaller.

• Ask about the lender's requirements for a down payment.
• Ask your lender about special programs it may offer.

If PMI is required for your loan,

• Ask what the total cost of the insurance will be.
• Ask how much your monthly payment will be when including the PMI premium.
• Ask how long you will be required to carry PMI.

Obtain the Best Deal That You Can Once you know what each lender has to offer, negotiate for the best deal that you can. Lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. Loan officers and brokers may keep some or all of this difference as extra compensation. Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You'll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There's no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere. It’s just like negotiating for a car.

Remember: Shop, Compare, Negotiate Remember to shop around, to compare costs and terms, and to negotiate for the best deal. Don't be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.

Based on FTC: Looking for the Best Mortgage: Shop, Compare, Negotiate dated April 2008

See also the FTC Mortgage Shopping Worksheet

This article is meant to give you general information and not specific legal advice.

Prepared by Community Legal Aid Services, Inc. Updated April, 2012 CE-62-F190-CLAS