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| SHOPPING FOR MORTGAGE |
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Selecting Lender |
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What should I ask my lender? |
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What are the advantages of using an online lender? |
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What is the difference between a direct lender and a mortgage broker? |
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What should I look for in an Internet lender? |
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Why should I apply online? |
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How should I compare rates offered by different lenders? |
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Is comparing APR's the best way to decide which lender has the lowest rates and fees? |
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What should I ask my lender? |
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What type of loan is best for me?
If you've done some groundwork you should have a pretty good idea of what type of loan you need. But your lender may offer options you hadn't considered or even something you haven't yet heard about.
What will my closing costs be?
At closing, you'll be required to pay a number of fees such as transfer of title, origination and appraisal, attorney services, credit report, title insurance and inspections. Your lender is required to provide an estimate of these costs within a few days after your application is received, but you can always ask for an estimate sooner.
Will I be charged points?
Sometimes you'll have to pay points (one point = 1% of the loan amount) in order to get the interest rate the lender has quoted you. Before proceeding with your loan application find out if there are any points attached to your loan.
What items must be prepaid?
Some expenses, such as first year's property taxes and insurance, must be paid at closing. Your lender will let you know what's required.
How long will I be guaranteed the quoted interest rate?
This is called "locking in" a rate and most lenders provide this service. When you apply for your loan, the lender will lock in the agreed interest rate for an agreed period of time. But there may be a fee for this, so ask.
How long will it take to get approval?
It varies, so make sure you get an estimate of how long approval will take, especially if you have a deadline for closing on a new home.
Does the loan have a pre-payment penalty?
If you even think there's a possibility you may pay off your loan early (this includes refinancing) find out if there's a penalty for doing so.
Is there a call option attached?
A call option allows the lender to require you to pay off your loan balance before it's due. You don't want this, so make sure it's not in the contract.
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What are the advantages of using an online lender? |
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If you're looking for a mortgage it may be tempting to pick up the phone book or to visit your local bank, after all that's how people have done it forever.
Before you do - check out some of the advantages of shopping online for a mortgage.
- Rates and fees are lower.
- Faster, easier comparison shopping.
- Apply at your convenience.
- Personal Assistance whenever you need it.
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What is the difference between a direct lender and a mortgage broker? |
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Direct lenders work directly with borrowers and fund loans in their own names.
Mortgage brokers take applications, collect supporting documentation and then submit the information to a lender to fund the loan.
Mortgage brokers traditionally charge 1-2% commission for their services.
This may be collected from the borrower in the form of an origination fee or from the lender who passes the cost on to the borrower in the form of a higher interest rate.
The Internet now allows borrowers to shop lenders on their own and obtain the lowest rate available without having to utilize the services of a mortgage broker.
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What should I look for in an Internet lender? |
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At a minimum, the following two standards should be required of any Internet lender competing for your business:
- Each day, the lender should post current rates, points and fees to their Web site.
- On the day you lock your rate, the lender should guaranty in writing (by e-mail or fax) your rate, points total loan fees, loan terms, whether the loan has a prepayment penalty and whether an impound account will be established.
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Why should I apply online? |
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Using ShearsonMortgage.com lets you go through the loan process at your own pace, when it's the most convenient for you.
The electronic format of your application is a fast, paperless way to organize your loan information.
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How should I compare rates offered by different lenders? |
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When comparing lenders, it is important to compare total costs for the same interest rate and lock period.
Because rates change daily, it is important that you compare all lenders you are considering on the same day.
It is also important that you ask about certain features of the loan, such as prepayment penalties and whether or not you will be required to have an impound account for your taxes and insurance.
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Is comparing APR's the best way to decide which lender has the lowest rates and fees? |
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The Federal Truth in Lending Act requires that all financial institutions disclose the Annual Percentage Rate (APR) when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan.
For adjustable rate mortgages, the APR can be complex. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Also, the APR doesn't include all the closing costs. Look at total fees, possible future rate adjustments (for ARM loans) and the length of time you plan to have your mortgage.
Don't forget that the APR is an effective interest rate - not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
You may also want to use the Fannie Mae True Cost Calculator available in our Calculator or FAQ Section to help you compare mortgage options.
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