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The Cost of Your Home Loan
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Money Isn't Everything
When considering lenders, factor in the level of service they will provide throughout the loan process. I'll be glad to provide a list of lenders who have successfully helped clients in the past. I also suggest that you ask friends and family in the area for their recommendations.
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The same care and consideration you give to finding the right house should be applied to your search for the right lender. For most home buyers a major determining factor in selecting a lender is the cost of the loan. But how do you determine the cost of a home loan?
Shopping for a Home Loan
While most buyers concentrate on interest rates, it is best to look at all the costs and terms associated with a mortgage loan. These include the quoted interest rate, term (length) of the loan, points and closing costs.
More than Just Interest
The fees associated with the loan include:
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Appraisal - A carefully documented opinion of value by a licensed, professional appraiser.
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Credit Report - A detailed report of your credit, employment and residence history prepared by a credit bureau.
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Title Insurance - While the seller usually pays for a title policy insuring the buyer of a home, the buyer / borrower typically pays for a title policy insuring the lender.
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Document Fees, Loan Fees and Processing Fees - Miscellaneous fees charged by the lender. Keep an eye on these - some lenders charge more fees, also known as "junk" fees, than others.
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Discount Points - Points paid in addition to the loan origination fee to get a lower interest rate (1 point = 1 percent of loan amount). The more points paid, the lower the interest rate. Generally, it is better to pay points and "buy down" the interest rate when the loan will stay in place for many years.
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Origination Points - the total number of points paid by the borrower at closing.
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Interest Rate - A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.
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Prepayment Penalty Mortgages (PPMs)
These loans restrict your right to prepay part or all of the principal in the loan's early years. A prepayment fee is charged by the lender to the borrower who wishes to pay part or all of the loan ahead of the regular schedule. The advantage of a PPM is that they often have a lower interest rate than other mortgages.
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Using the Annual Percentage Rate (APR) to Compare Home Loans
The APR was designed to help borrowers understand the relative costs of a home loan. The APR takes into account the various fees associated with the loan, which is why it is usually higher than the interest rate. Understand that not all lenders calculate a loan's APR in the same way. That is why this should be only one of the factors used in selecting the best loan for you.
Locking-in Interest Rates
Another factor to consider when selecting a lender is whether the lender will lock-in the loan's interest rate and points. Click here to learn more about lock-in options. | 