Mortgage Rate Tips
If you get a portion of your down payment from good ol' mom and dad, you need to leave it in the bank for more than two months or obtain a gift letter explaining that the money is a gift, not a loan.
Ask your lender for a Good Faith Estimate (GFE), which includes all costs and fees you will incur. But be aware that it is just that — an estimate. Third-party fees can change and are not under your lender's control. Still, a good lender should be up-to-date on what the fees will be. When you ask for references from friends, ask how close the GFE was to reality.
There's no free lunch (or free loan): You can choose between higher rates with lower points, or lower rates with higher points. The key is to compare different types of loans to see what works for your needs.
In general, you should never pay more than 1 to 1-1/2 points to a lender, depending on the loan. (In certain circumstances, you might pay 2 percent, but only if there is a good reason; e.g., bad credit, complex loan, or you are getting a great interest rate.)
Lenders and your local bank will have the latest rates for each type of loan. And you can request them on Zillow Mortgage Marketplace. Shop around for rates in your city to see who is offering the best deal locally. But be sure you are comparing the exact same loan; look at the points as well as the interest rate. (Zillow Mortgage Marketplace's quote form is designed to make it easier for lenders to compare apples-to-apples when looking at quotes.)
Compare loans using the Annual Percentage Rate (APR) which wraps up the interest, points and fees in an effective annual rate over the life of the loan. When you are using the APR to compare loans, make sure you are comparing apples to apples. You need the same loan from different lenders to make the comparison work. Compare the APR on two identical loans and choose the one with the lesser rate.
Pay half your house payment every two weeks instead of one monthly payment. This results in 26 payments per year, one more payment annually than if you just paid monthly. The re-amortized loan will eventually result in more of the payment paid on principal and less on interest. The extra payments go to pay down the principal on the loan. (Make sure there is no bank cost for making these extra payments.)
You have the right under federal law to get an itemized list of fees at least one day prior to closing. This is provided on the HUD-1 Settlement Form. All fees that you must pay are itemized separately. Go over the list ahead of time, and read the sales contract one more time as well. Make a list of closing costs you agreed to pay and check it against the HUD form.
Pay attention to the Yield Spread Premium — a percentage of the loan amount that a lender pays a broker for a loan with a higher interest rate, and lower fees. The YSP must be disclosed on the HUD-1 Settlement form. If your loan includes YSP, your mortgage rate could end up higher than the best mortgage you could qualify for without it.
Your lender will lock in, or commit to, your rate when you apply if you ask him. If he does not, you might end up with a higher rate than quoted. (Of course, if you think rates will decrease between the time you apply and when you actually obtain the loan, you could chance it without a lock.) If you ask for a lock-in, ask if there is a fee involved. And be sure to get the agreement in writing. The written commitment should also reveal the points to be paid at closing.
By Diane Tuman
- Last edited October 12 2012
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