Home lending is a gigantic industry in the United States; in 2014 lenders originated $1.24 trillion in new home lending and there are more than 7,100 lenders. There are plenty of different mortgage plans available for you to choose. So, as a consumer considering taking on a new mortgage, you can afford to be picky.
The most standard element of home lending is, arguably, the process of qualifying to borrow against real estate in the first place. The funding offer that you get first from a lender is likely to be the offer that fits their portfolio or earns the highest profit margin in the secondary mortgage market. You should look carefully at the terms of the offer and decide if it is what will be the best for you.
The Obvious Terms
There are a few features to watch in the loan that they offer you, some of which will be fairly obvious and relate to your general needs and then some more things that you should look into closely. The obvious things are the term, whether it is a government-backed loan and if it is a fixed or adjustable interest rate.
The Details In The Fine Print
Some of the more subtle things are the interest rate, the cost of mortgage insurance that facilitated a low deposit and the mortgage discount points that you will pay at closing.
The interest rate – The interest rate your prospective lender offers will likely be near the market but never assume anything. If you have focused on other features such as the down payment or discount points the interest rate that they quote might be higher than you would like. Keep in mind that a quarter of a percent increase in your rate can add thousands in costs over the lifetime of a loan.
FHA mortgage insurance – If you go for a government-backed mortgage, make sure that you understand how much to pay for FHA insurance cost and when you pay it. You will have to pay a lump sum at closing and a monthly amount that tacks on to your repayments.
Discount points – The points that you prepay matter; if you have not negotiated on this they may be higher than you want to pay up front or not enough to get the rate you want. There is a direct link between the interest in the repayments and the points that you prepay. When you change the discount points it may give you a way to get terms that suit your agenda better.
The Power To Change The Terms
The loan officer will present all of these terms to you with a written offer, and that is the point at which you can either accept it without question or go through it line by line and decide what works best for you. There might be terms in the fine print that specify paying some of the fees in the closing cost that you may wish to have in the repayments. Alternatively, it might be that you want to pay some of the expenses buried in the repayments at closing instead.
Your loan officer or independent agent will put together a first offer based on what they think you need, what suits them, or maybe the plan they can push through their company bureaucracy most quickly. The question to ask is whether what they present to you is the loan that the loan officer wants to sell because of it is a natural choice, the one they sell most often, or the one that earns the highest commission for the originator.
The originator might be highly experienced and in tune with what you need. Do not hesitate to question anything that is expensive or does not make sense to you. Remember, there are plenty more lenders out there, you are in a strong position to negotiate, or to walk away if you feel you could do better.