Secrets of shopping for a home mortgage

With the recent drop in interest rates, many home buyers and current homeowners will be in the market for a real estate loan. According to Joseph Conti, president/CEO, Equity Masters, Inc Corona de Mar, Calif., this can be an intimidating process and very costly if not approached with proper knowledge. Shopping for the right loan agent and loan program can save prospective buyers (or those refinancing) thousands of dollars. Yet, many mortgage shoppers either do not ask the right questions or make enough inquiries. There are certain basic steps, however, that will reduce some of the guesswork when shopping for a real estate loan.

Selecting the correct mortgage broker or loan agent is a crucial step in getting the right home mortgage. Simply put, the loan agent you choose will be the biggest factor in the quality of the loan and the amount of fees paid. Although most loan agents are professional, there are some unethical ones who can cause uninformed borrowers many heartaches by placing them into a situation that is not right for them or grossly overcharging them for a loan. Good loan agents will answer all questions without hesitation. They will spend time with the client to determine what loan he or she qualifies for and one that fits the client's short- and long-term plans. One of the best ways to find a good agent is to ask friends or relatives who recently have bought or refinanced a home whether they would use the broker or lender again. It also is important to require references from all loan agents solicited and then check them. A good loan agent should not hesitate when asked to provide a list of recent clients.

When it comes to setting an appointment, ask the loan agent to provide the lender's rate sheet in order to verify the interest being quoted. This is extremely important to assure that the loan officer actually can deliver the rate quoted.

The loan agent also should provide the client with an estimate of all closing costs prior to the appointment when he or she will collect the necessary paperwork to begin the loan process. A written quotation of closing costs known as the "Good Faith Estimate" should be requested before committing to use a loan agent. This estimate will provide a breakdown of all costs associated with the proposed loan, including interest rates, origination fees, and any inside points the broker stands to earn from the lender. The latter are important to understand when shopping for a loan and are discussed in more detail below.

Having some expertise in obtaining the right loan is paramount. It is important to understand some basic real estate lending terminology when shopping for a loan. The more informed buyers are, the less likely it is that they will pay for hidden charges they do not understand. The following are a few important terms to remember:

The APR (annual percentage rate) is the measure of the loan's cost in relation to the amount and term. It includes all the major expenses related as a percentage of the loan amount. The APR is designed to assist borrowers in making a meaningful cost comparison between lenders and their loan programs. It is mandatory for lenders and mortgage companies to disclose the APR when they provide a loan quote.

Loan origination fees, also known as points. A point is one percent of the loan amount. Points are charged by the originating lender or broker.

Discount fees are points charged by the lender for an interest rate lower than par.

Inside points are paid to the broker by the lender for an interest rate higher than par. Mortgage brokers must disclose any inside points earned, while a direct lender is not obligated to do so. Par is an interest rate in which the mortgage broker does not receive any inside points or is not charged discount points from the lender. For example, a 7.5% interest rate would be at par, while 7% may cost two discount points. On the other hand, 8% would give the lender or broker two inside points. The higher the interest rate, the lower the closing costs should be; the lower the interest rate, the higher the closing costs.

Another crucial step in obtaining a good home loan is developing a system for getting quotes from various sources. Just as you would not purchase an automobile from the first dealership you go to, it is important to make comparisons or shop for a loan from various loan sources available in the market. These include commercial banks, savings and loans, and a variety of mortgage brokers who represent both private and government-sponsored lenders. The key points to review in deciding exactly what type of loan you should shop for include adjustable vs. fixed rate mortgage; amortization--the number of years it takes to pay off the mortgage; amount of the down-payment required; interest rate; loan fees (origination and/or discount points, processing, underwriting, etc. ; and annual percentage rate. Each new home buyer or current homeowner looking to take advantage of today's low interest rates should make an effort to become a more knowledgeable consumer. This entails not only choosing the right loan agent, but knowing the right questions to ask when shopping for the loan that will meet short- and long-term goals. After all, the typical owner will pay for the loan for 15 to 30 years, so making the correct decisions can save thousands of dollars!

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