How to Compare the Best Home Loans

Many borrowers purchase their home with a mortgage.

When trying to procure a new home loan, a borrower can be inundated with a lot of information and no obvious way to make a decision. Through a review of the Good Faith Estimate and the Truth in Lending Statement, a borrower can determine which mortgage is the cheapest and then use that information to determine the best home loan. It can be a cumbersome process, but it is worth it to save money over the entire term of the home loan.

Things You'll Need

• Good Faith Estimate
• Truth in Lending Statement

Instructions

1. Ask three lenders to give you a Good Faith Estimate and a Truth in Lending Statement on your home loan. If you are deciding between two different types of mortgage loans, ask for the two documents on both types. Label each document from each lender with both the lender's name and the type of mortgage to limit confusion.

2. Note the closing costs on each Good Faith Estimate. This document is an outline of all of the closing costs or fees associated with procuring the home loan.

3. Review the Truth in Lending Statement. This documents lists the APR, or annual percentage rate, of the home loan. This percentage is the numerical representation of the total cost of the home loan for a full year, including the closing costs and the monthly interest. The loan with the lowest APR is the cheapest overall mortgage.

4. Determine the cheapest overall mortgage using the APR and decide which lender you prefer. If the cheapest lender is not your preferred lender, ask your preferred lender to meet or beat the cheapest mortgage option. In most cases, the lender will at least meet your cheapest option to win your business.

Tips & Warnings

• Avoid multiple hits to your credit score by pulling a tri-merge credit report from an online website, such as AnnualCreditReport.com. The credit report will be free, however, you will have to pay for your scores. Give each lender a copy of this report and ask them to wait to pull your credit report until after you have made your final decision.

• Keep your original Good Faith Estimate and Truth in Lending Statement until closing. Compare the original offers to the one at the closing table to ensure that there is not a substantial difference between the two. If so, ask your lender for an explanation. Remember, you can walk away at any point before you sign the closing paperwork.

References

• Federal Reserve: Looking for the Best Mortgage
• U.S. Department of Housing & Urban Development: Good Faith Estimate
• Lending Tree: Truth in Lending Statement

Resources

• Annual Credit Report