- Step 1: Crunch the numbers Take advantage of the mortgage calculators available online to determine how large of a mortgage you can afford.
- Step 2: Get rate quotes Get quotes from several lending institutions. If you go to a bank, know that the rate posted is not necessarily the lowest rate that’s offered.
- TIP: Consider using a mortgage broker, who will do the legwork for you and may be more skilled at negotiating lower rates.
- Step 3: Pick a rate type Know whether each rate is fixed or adjustable. An adjustable rate will rise and fall according to the market. If you’re not a gambler, go with a fixed rate.
- TIP: In case you haven’t heard, taking a subprime mortgage isn’t very wise. You’ll end up paying higher rates and fees—and you might further jeopardize your credit rating.
- Step 4: Uncover hidden costs Ask for a rundown of every single fee you’ll be expected to pay at closing.
- TIP: The Annual Percentage Rate, or APR, is meant to help you compare lender rates. But because lenders calculate APR differently, the lowest isn’t necessarily the best deal. Instead, request each lender’s loan fees and go with the lowest offered.
- Step 5: Don’t automatically pay points Don’t automatically pay points, which are fees you pay the lender—specifically, one percent of the loan amount—that lower your interest rate. They generally are only beneficial to people who plan to be in their homes for a long time.
- Step 6: Understand the fees A home loan involves many fees, so ask the lender or broker to break down each. Don’t be afraid to ask questions—like why they’re charging you 50 bucks for a credit report that cost them $12.
- FACT: Thirty-four percent of homeowners don’t know what kind of mortgage they have, according to one survey.
You Will Need
- Time to research rates
- Some mathematical ability