Home Loans Articles

Mortgage Loan Tips

Learn the essential tips you need to know before buying a home, so you get the lowest rates and save money!

Buying a new home is -- for most people -- the most important purchase they will make during their life. Once the decision to buy has been made, hunting for the best rate can become as much of a burden as hunting for the perfect house. With a glut of mortgage lenders aggressively pursuing your business, how do you know when you're getting the best deal?

We've compiled a list of tips to help you get the best deal on a mortgage loan when you buy your new home. Whether you're looking to purchase, refinance, or take out a loan on your home's equity, these tips can help you rest assured that you saved as much as possible.

Loan Rates are Negotiable

You need to be aware of the fact that the persons negotiating your loan are merely loan officers that are paid on commission. They earn their living by selling you a loan -- and the more you spend, the more they make. Just like when you purchase a vehicle, a mortgage loan can, and should, be negotiated.

Before you commit to any particular lender, get quotes from as many competitors as you can. Additionally, don't be afraid to request to speak to other loan officers within the same company. Like we mentioned above, they all work off commission, and some will certainly be more willing to take a cut in their earnings in order to make the sale. By merely exercising smart shopping protocol, you stand to save thousands of dollars. When dealing with this type of money, spending a few extra days shopping around is well worthwhile.

Not All Mortgage Lenders are the Same

Know that the majority of mortgage "lenders" you come across do not actually fund your loans. Instead, they are so-called mortgage brokers, or basically middlemen, that serve to connect you with a bank that issues the loan. They profit by earning a commission from referring you to the lenders. Common wisdom would suggest that - by cutting out the middleman - you can save more money. While this is often the case, note that brokers often can offer lower rates than you would receive by going directly to the bank due to the fact that they receive discounted rates. As a result, you cannot entirely dismiss borrowing through a broker.

One important fact you need to note is that mortgage brokers may claim that they shop around from hundreds of actual lenders to get you the best rates. In reality, they are merely pulling from a pool of lenders with which they have relationships. If the best rate for you doesn't net the broker the most money, chances are they won't offer it to you.

And if dealing with brokers couldn't get more confusing, you also must be aware of the fact that mortgage brokers often will claim that they are in fact a bank. In other words, they will tell you that they directly issue the loan to you, cutting out the middleman. Due to their vague nature, you must ask the company you are dealing with if they are in fact a broker or the actual lender, because more often than not, they won't tell you themselves.

Check Your Credit Report

It is a well known fact that the lower your credit score, the higher your interest rate will be when you borrow money. For this reason, we always advise that you work on improving your credit score before you borrow large sums of money -- as is the case when buying a new home. For instance, you can take out a small loan and repay it promptly, or make purchases with your credit card and immediately pay it off. Both will positively impact your credit score, thus enabling you to receive a lower interest rate when you take out a mortgage. In the long run, a few small measures prior to borrowing could save you thousands down the road.

Additionally, take the time to explain negative marks on your credit report to lenders. Often times, negative information was caused due to extreme circumstances, and just by talking to your lender about the causes could net you a lower interest rate. Simply explain your situation, and what you're doing to correct it, and you could enjoy a lower interest rate.

Other Helpful Tips:

Often times mortgage lenders will issue you a loan for more than your home's purchase price. If you have outstanding debts at high interest, you can use the excess to pay them off and repay at a lower interest rate.

When you are negotiating the final purchase price of a home, request that the seller pay for some of the closing costs.

Before you buy a home, make sure your loan is already in place. In other words, make sure you know exactly how much money you have to work with, and get your loan pre-approved. This will give you more leverage in negotiating, as well as speed up the buying process.