Mortgage Calculators finance center

Shopping for Competitive Rates

Shopping for a mortgage is the first step toward owning a home and perhaps the most daunting, especially if you are not prepared.

Historically, home owning has been a good investment. But that doesn't mean that making a large down payment is the best strategy.

There are dozens of loan types and hundreds of loan programs available through thousands of mortgage brokers, bankers, lenders, finance companies, credit unions, even stock brokerage firms.

First and foremost, you must determine how your mortgage payment will fit your current budget and, to some extent, your future obligations 15 to 30 years later.

By comparing different loan scenarios your more likely to get more value for your money. Try our Loan Comparison Calculator and sort through the different variables associated with getting a new loan.

If you discover too late that you can't afford your mortgage, you'll not only face the possibility of losing the roof over your head, but you could also damage your credit and the possibility to purchase a home later.

Examine your finances
When you buy a home, determine how much mortgage you can afford. It's up to you to take stock of your income and expenses, both current and projected to determine what you can comfortably manage each month along with some reserves. Don't forget related insurance, taxes, homeowner association dues and any other costs rolled into the mortgage payment.

Don't forget about furniture, it's not cheap. Odds are that you will need some for your new home. Can your back handle a sleeping bag for six months?

Shopping for a loan
there are basically two basic types of mortgage stores to shop -- direct lenders and mortgage brokers.

Direct lenders have money to lend. They make the final decision on your application. Brokers are intermediaries who, like you, have many lenders from which to choose. Lenders have a limited number of in-house loans available. Brokers can shop many lenders for each lenders' store of loans. If you have special financing needs and can't find a lender to suit them, an experienced broker may be able to ferret out the loan you need. Mortgage brokers, however, are paid with a slice of the amount you borrow, some more than others some less. Internet brokers today perhaps receive the smallest cut, sometimes none at all, and can prove to be the real bargain.

You'll also have to shop loan costs, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal and a host of others.

Don't throw all your money into the down payment and then find yourself stuck at closing.

Lenders break up the amount that they charge you into the interest rate, fees and points. By looking at either only the interest rate, you don't see the whole picture. Using APR helps you compare apples to apples.
An APR combines the two, so that you won't be confused by different fee and interest rate combinations.

Applying or Qualifying for a loan
The application process is not that hard -- provided you've gathered documents necessary to prove claims you make on the application.

Qualifying online can help ensure that you get good rates and options with a minimal amount of time and paperwork. There's a huge online database allowing borrowers the ability to shop literally thousands of lenders, rates, and programs with a mouse click.

Gather information about your job tenure, employment stability, income, your assets (property, cars, bank accounts and investments) and your liabilities (auto loans, installment loans, mortgages, credit-card debt, household expenses and others).

You'll have to supply additional documentation including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, and other documentation. A credit check will be required at some point to determine your credit status. If you qualify, then an appraisal is usually ordered to make sure the value of the home you are about to buy is truly worth your loan amount.

Competitive rates
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