9 Steps to Buying a Home

Step 3. Shop For A Loan

Save money by doing your homework.

Obtain information from several lenders. Home loans are available from several types of lenders, such as * thrift institutions, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure your are getting the best price. You can also get a home loan through a * mortgage broker.

Compare all costs involved in the loan:

• Ask each lender or broker for a list of current mortgage * interest rates.
• Ask whether the rate is a * fixed rate or an * adjustable rate.
• Ask about the * annual percentage rate (APR).
• Ask about points. Points are fees paid to the lender or broker by you for the loan and are often linked to the interest rate, usually the more points you pay, the lower the interest 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. A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage loan for 65,000 dollars, one point means you pay 650 dollars to the lender.
• Ask about * closing costs fees. Every lender or broker should be able to give you a * good faith estimate of its fees.
• Ask about the down payment, how much is required. Some lenders require 20 percent of the home's purchase price as a down payment. Some 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 privat mortgage insurance (PMI), which is to protect the lender in case the home buyer fails to pay. PMI is provided by a private mortgage insurance company, is usually paid by the borrower (you), and is included in the mortgage payment.

Once you know what each lender has to offer, negotiate for the best deal that you can. There is 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 include the rate that you have agreed upon, the period the lock in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate. This fee may be refundable at closing.

Since interest rates and points can change daily, you will want to check your newspaper often when shopping for a home mortgage loan. Don't be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.

Let FHA Loans Help You. Go to www.hud.gov/fha/loans.cfm or visit www.hud.gov/buying/

Fair Lending Required By Law:

• The Equal Credit Opportunity Act (ECOA) of 1974 prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicants income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.
• The Fair Housing Act of 1968 prohibits discrimination in residential real estate transactions (housing sales or loans) on the basis of race, color, religion, sex, handicap, familial status (having children under the age of 18), or national origin.
• Under these laws, the Equal Credit Opportunity Act (ECOA), and the Fair Housing Act of 1968, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics.

Glossary For This Page
(In Alphabetical Order)

* Adjustable Rate
Also know as variable rate, usually offers a lower initial interest rate than the fixed rate. The interest rate fluctuates over the life of the loan based on the market conditions, but the loan agreement generally sets maximum and minimum rates. When the interest rates rise, generally so do your loan payments, when interest rates fall, your monthly payments may be lowered.

* Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.

* Closing Costs
Closing costs are paid at closing, which is when the borrowers takes on the mortgage loan obligation. A home mortgage loan involves many fees, paid by you, such as loan origination or underwriting fees, broker fees, points, property taxes, title search and title insurance, credit report fee, appraisal fee, financing costs, items that must be prepaid or escrowed, interest from the closing date to the beginning of the 1st payment, hazard insurance premium, mortgage insurance premium, etc. Not all closing costs may apply to your transaction. Many of these fees are negotiable. Some fees are paid when you apply for the loan, and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but by doing so will increase your loan amount and total costs. No Cost loans are sometimes available, but they usually involve higher interest rates.

* Conventional Loans
Mortgage loans other than those insured or guaranteed by a governmnet agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly know as Farmers Home Administration, or FmHA). There is a down payment required, usually 10 percent to 20 percent of the sales price. A conventional loan does not require private mortgage lnsurance (PMI).

* Fixed Rate
Both the interest rate and the monthly payments (principal and interest) stay the same during the life of the loan. Generally have repayment terms of 15, 20, or 30 years.

* Good Faith Estimate
An estimate from a lender or mortgage broker of all closing costs including prepaid and escrow items as well as lender or mortgage broker charges. Must be given to the borrower within three days after submission of a loan application.

* Interest Rates
The percentage of a sum of money charged to the borrower (you) by the lender for borrowing the lender's money. Interest rates can change because of market conditions.

* Lock In
A written agreement guaranteeing a home buyer a specific interest rate on a home loan if the loan is closed within a specific time period. Also, there is usually a specific number of points to be paid at closing.

* Mortgage Broker
A person or company engaged in the arrangement of mortgages for buyers. The broker is usually paid a commission by the lender. More about Mortgage Brokers

* Thrift Institution
A general term for savings banks and savings and loan associations.

Step 1. Figure Out How Much You Can Afford
Step 2. Know Your Rights
Step 3. Shop For A Loan
Step 4. Learn About Homebuying Programs
Step 5. Shop For A Home
Step 6. Make An Offer
Step 7. Get A Home Inspection
Step 8. Shop For Homeowners Insurance
Step 9. Sign Papers

SCAMS & FRAUD
Some Scams, Fraud, and Consumer Abuse Items in the News

Federal Laws
Major Laws That Govern Financial Institutions & Protect Individuals in Their Financial Dealings

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