How to Shop for a Mortgage Lender

(BBB) – If you are ready to purchase a home, refinance your home, or take out a home equity loan, you’ll need a mortgage. Mortgage lenders are generally willing to compete for your business, which means shopping around, comparing prices, and negotiating deals can save you thousands of dollars.

If you want to get the best deal possible, be sure to compare all the costs and understand how mortgages work. BBB recommends the following tips to help make your search for a mortgage lender a success.

How to Shop for a Mortgage Lender:

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  • Know how much you can spend upfront. Before you ask for information from a lender, it’s a good idea to know how much you can spend on a loan and the maximum monthly payment you can afford. This information will be a key part of your negotiations, so review your budget ahead of time.
  • Get to know your loan options. Loan options include loan terms, interest rate type, and loan type. The loan term refers to the length of the loan, which may be 15 or 30 years. Shorter loans usually have higher monthly payments with lower interest rates. Interest rate types may be fixed or adjustable. Fixed-rate loans are lower risk but carry higher interest rates. Adjustable-rate mortgages (ARMs) have lower interest rates to start, but the rates can change over time.  Loan types may be conventional or part of a government program. Understanding the options will help you choose the best loan for your situation.
  • Understand the difference between a broker and a lender. According to ConsumerFinance.gov, a lender is a bank or other financial institution that loans money directly to you. A broker acts as a middleman, comparing loan options on your behalf. The Federal Trade Commission adds, “Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word ‘broker.’ Therefore, be sure to ask whether a broker is involved.” You’ll want to know since brokers are usually paid a service fee separate from the lender’s fees.
  • Get information from multiple lenders and brokers before making a decision. Get as much information from each lender as you can. Keep your options open, to begin with, since different lenders may offer different rates, advises the FTC. Make sure you ask about interest rates, loan types, annual percentage rates, points, down payments, mortgage insurance, and all other fees. This will help you get a clear view of the actual cost of the mortgage.
  • Working with a broker? Make sure they find you the best deal. If you prefer to hire a broker to do the shopping for you, know that while brokers have access to several lenders, they aren’t obligated to find the best deal for you unless they sign a contract to act as your agent.
  • Be prepared to negotiate the best deal. Loan officers and brokers are allowed to keep some or all of the overages (the difference between the lowest available price and any higher price you agree to pay) of a loan as extra compensation. This means you may be able to negotiate a price lower than what they initially offer you. The best way to negotiate is to have the broker or lender give you a written list of all of the costs and fees included in the loan. Then, ask if they will reduce or waive completely one or more of the fees. You can also show them a competitor’s offer to see if they will give you a better deal.
  • Watch out for scams. Shopping around for a mortgage lender will help you get a general idea of how much a loan costs, which will help you spot and avoid any offers that seem too good to be true. Be wary of unsolicited calls and emails offering you great rates on a mortgage or “no-cost” loans. Never give in to high-pressure sales tactics. ConsumerFinance.gov warns about a phishing scam where con artists attempt to divert your closing costs and down payment by suggesting, right before your loan closes, that you wire the money into a fraudulent account. 

Source: BBB.org