If you need to borrow money to buy a home, you should shop around and submit applications to a variety of banks, credit unions and online lenders. Interest rates, fees and other terms can vary widely from one financial institution to another.
Getting several loan offers can help you find the lender that will give you the best terms. Having other offers can also give you leverage if you want to negotiate a portion of an offer with a particular lender.
Understand the Terms of Each Offer
Each lender will provide you with a Loan Estimate that gives a breakdown of all the terms of a proposed mortgage. It will include information on monthly payments, interest rates, closing costs and other key details. Lenders use a standardized form that makes it easy for consumers to compare offers.
Review the forms carefully and make sure that you understand exactly what each lender is offering. Look at offers side by side and note similarities and differences. For instance, one offer might have a lower interest rate, but it might assume that you will pay an upfront fee at closing to purchase discount points. That might be a smart move, but it will increase the amount that you’ll have to pay at closing. If money is tight, you might prefer to avoid purchasing discount points.
Look out for things that might change in the future. For instance, if a lender offers you an adjustable-rate mortgage, note when the interest rate will adjust, how often it will change and how high it can go. You should also look for information on balloon payments and prepayment penalties.
Pay attention to the annual percentage rate (APR). That includes the interest rate, plus fees, and gives a more accurate picture of how much a mortgage will cost you.
Negotiate If You Can
Closing costs include a number of fees. In some cases, you can shop around and get a particular service from the company of your choice. If you can find a company that offers a service for less than the amount the lender included in the estimate, that can reduce the total amount you’ll pay in closing costs.
You will see an “application fee” or an “underwriting fee” that the lender charges. Origination fees differ from one lender to another. If you like the terms of a particular loan, but the lender’s fee is higher than those of competitors, you might be able to negotiate a reduction.
Select the Best Offer and Notify the Lender
Once you have decided which loan offer is best, notify the lender that you accept its offer and that you want to proceed. Check the loan estimate to find out how long the offer is valid and be sure to reply within that window of time.
