The comparison of mortgage or home loan prices will help you achieve more favorable financing terms. A mortgage – whether for the purchase of a home, a refinance, or a loan on the liquid value of your home – is a product equal to a car, and therefore, the price and terms can be negotiable. You will want to compare the total cost of getting a mortgage, since negotiating and comparing prices could save you thousands of dollars.
Obtain information from various credit sources
Several types of financial institutions grant mortgage loans – savings and loan institutions, commercial banks, mortgage companies, and credit unions. Since each one can quote you different prices, it is important that you contact several companies to ensure that you get the most favorable price. A loan broker can also get you a mortgage loan since they take care of all the necessary steps instead of lending you money directly. In other words, they can find an institution that grants the loan. As the broker has access to several financial institutions, you can choose from a greater variety of products and financial terms. The broker generally submits your application to several credit institutions, but you are not required to find the most advantageous loan for you, unless you have hired him as your personal agent. Therefore, it would be wise to consider contacting more than one loan broker, just as you would with banks and savings and loan associations.
It is not always clear if you are dealing with a credit institution or with a broker, since certain financial institutions operate both as a lender and as a broker. In addition, most brokers do not use the word “broker” in their advertisements. Therefore, it is important that you ask if you are dealing with a broker. This information is important as brokers generally charge fees for their services which could be separate and additional to the fees charged for originating the loan and other related costs. The broker could receive his remuneration in the form of “points” that are paid upon closing the deal or as an addition to the interest rate, or both. You need to ask each broker with whom you are dealing with how you will be paid in order to properly compare the different charges. Be willing to negotiate with both brokers and financial institutions.
Initial payment and private mortgage insurance
Certain credit institutions require a down payment of 20 percent of the purchase price of the home. However, many institutions currently offer loans that require less than 20 percent – sometimes only 5 percent for conventional loans. When a 20 percent down payment is not made, the financial institution generally requires the buyer to obtain private mortgage insurance (PMI) to protect the institution in case the buyer cannot pay. When government assistance programs are available, such as the FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services, the down payment may be considerably less.
Ask about the credit institution’s requirements for the down payment, including what you have to do to verify that the funds for the down payment are available.
Ask the financial institution if it offers special assistance programs.
If your loan requires PMI,
Ask what the total cost of insurance will be.
Ask how much the monthly payment will be including the PMI premium.
Ask for how long the PMI will have to pay.
Get the most favorable treatment
When you know what each financial institution offers you, negotiate the most favorable treatment for you. Agents and financial institutions can offer different prices for the same loan terms to different consumers on the same day, even if they have the same credit ratings. The probable reason for this price difference is that bank officials and credit brokers are often allowed to withhold all or part of this difference as additional compensation. Generally, the difference between the lowest possible price for a credit product and the highest price the borrower is willing to pay is known as an excess. When the excess is produced, it is incorporated into the price quoted to the consumer. It can occur in both variable and fixed loans in the form of points, charges or the interest rate. The price of any loan may include excess, even if it is quoted by a bank official or a broker.
Ask the credit institution or broker to tell you in writing all the costs associated with the loan and then ask them to cancel or reduce one or more of the charges, lower your interest rate or charge you less points. But be careful that you are not reducing one charge and raising another, or that by lowering the interest rate, increase the points. Nothing is lost by asking the credit institution or the broker if you can improve the original terms offered or those offered elsewhere.
When you are satisfied with the terms that you have negotiated, ask the lender or broker for a written commitment of an unmodifiable interest rate that includes the agreed rate, the duration of the commitment and the amount of points you must pay. If you are charged a fee to secure the interest rate on the loan, it can be repaid at closing. This way you protect yourself from increases in the interest rate during the credit approval period. However, if the rates go down, you may end up with a less favorable rate. In that case, try to negotiate the price with the lender or with the broker.