How to Select the Best Mortgage
Borrowers who are looking to purchase a new mortgage or refinance their current mortgage often worry that they are not getting the best deal available. Through mortgage shopping, a borrower can learn how to spot the best mortgage for his needs and save money while doing it. The key is to read the disclosures given to the borrower by the lender at the time of application.
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Instructions
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Fill out a mortgage application with a local lender. Be sure to bring two months of your bank statements (all pages), two months of pay stubs and two years of tax returns for all borrowers.
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Request a copy of the Truth in Lending Statement from the lender, along with a Good Faith Estimate on the loan.
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Read through the Truth in Lending Statement carefully, focusing on the annual percentage rate (APR). This is the numerical representation of the total cost of the loan for one full year, including fees and the monthly interest rate. The lower the APR, the lower the overall cost of the loan. Even if one mortgage has a lower monthly interest rate than another, if its APR is higher it is a more expensive loan.
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Read through the Good Faith Estimate. This form is an outline of all the fees and basic information associated with the loan. It goes into great detail about each fee to show the borrower the entire cost of the loan. If the monthly interest rate is lower for one mortgage compared with another, but the total closing costs are higher, it is a more expensive loan.
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Choose the loan with the lowest APR that best fits the borrower's payment and risk needs. If the borrower is risk-adverse, he should choose a 30-year fixed payment. If he is willing to take a risk, the borrower should look into an adjustable rate mortgage with a lower interest.
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Tips & Warnings
A borrower should check his credit report and score prior to applying for a new mortgage. Any errors found on the report should be removed, to help raise the score. The higher the credit score, the better the mortgage interest rate will be, and the higher the likelihood of the loan being approved.
Shopping around for rates can hurt a borrower's credit score. Take a copy of the borrower's credit report with the original application. The lender can use it as a basis for a quote and then once the final lender is selected, the borrower can allow one lender to check the score, minimizing the damage to the score.
