• Ask about the loan’s annual
percentage rate (APR). The APR
takes into account not only the
interest rate but also points, broker
fees, and certain other credit
charges that you may be required
to pay, expressed as a yearly rate.
Points
Points are fees paid to the lender or
broker for the loan and are often linked
to the interest rate; usually the more
points you pay, the lower the rate.
• Check your local newspaper for
information about rates and points
currently being offered.
• Ask for points to be quoted to you
as a dollar amount—rather than just
as the number of points—so that
you will actually know how much
you will have to pay.
Fees
A home loan often involves many fees,
such as loan origination or under-
writing fees, broker fees, and trans-
action, settlement, and closing
costs. Every lender or broker should
be able to give you an estimate of its
fees. Many of these fees are nego-
tiable. Some fees are paid when you
apply for a loan (such as application
and appraisal fees), and others are
paid at closing. In some cases, you
can borrow the money needed to pay
these fees, but doing so will increase
your loan amount and total costs. “No
cost” loans are sometimes available,
but they usually involve higher rates.
• Ask what each fee includes.
Several items may be lumped into
one fee.
• Ask for an explanation of any fee
you do not understand. Some
common fees associated with a
home loan closing are listed on the
Mortgage Shopping Worksheet in
this brochure.
Down Payments and
Private Mortgage Insurance
Some lenders require 20 percent of
the home’s purchase price as a down
payment. However, many lenders now
offer loans that require less than 20
percent down—sometimes as little as
5 percent on conventional loans. If a
20 percent down payment is not
made, lenders usually require the
home buyer to purchase private
mortgage insurance (PMI) to protect
the lender in case the home buyer fails
to pay. When government-assisted
programs such as FHA (Federal
Housing Administration), VA (Veterans
Administration), or Rural Development
Services are available, the down
payment requirements may be sub-
stantially smaller.
• Ask about the lender’s
requirements for a down payment,
including what you need to do to
verify that funds for your down
payment are available.
• Ask your lender about special
programs it may offer.
If PMI is required for your loan,
• Ask what the total cost of the
insurance will be.
• Ask how much your monthly
payment will be when including the
PMI premium.
• Ask how long you will be required to
carry PMI.
Obtain the Best Deal
That You Can
Once you know what each lender has
to offer, negotiate for the best deal that
you can. On any given day, lenders
and brokers may offer different prices
for the same loan terms to different
consumers, even if those consumers
have the same loan qualifications. The
most likely reason for this difference in
price is that loan officers and brokers
are often allowed to keep some or all
of this difference as extra compensa-
tion. Generally, the difference between
the lowest available price for a loan
product and any higher price that the
borrower agrees to pay is an overage.
When overages occur, they are built
into the prices quoted to consumers.
They can occur in both fixed and
variable-rate loans and can be in the
form of points, fees, or the interest
rate. Whether quoted to you by a loan
officer or a broker, the price of any
loan may contain overages.
Have the lender or broker write down
all the costs associated with the loan.
Then ask if the lender or broker will
waive or reduce one or more of its
fees or agree to a lower rate or fewer
points. You’ll want to make sure that
the lender or broker is not agreeing to
lower one fee while raising another or
to lower the rate while raising points.
There’s no harm in asking lenders or
brokers if they can give better terms
than the original ones they quoted or
than those you have found elsewhere.
Once you are satisfied with the terms
you have negotiated, you may want to
obtain a written lock-in from the
lender or broker. The lock-in should