How to Outsmart Lenders and Save Thousands of Dollars On Your Next Mortgage!

By Alan Niemann
Staff Writer

One of the biggest mistakes many people make when looking for a mortgage-whether it's a home purchase, a refinancing, or home equity loan- is not shopping around for the best rates and terms. As a result too many people with decent credit get stuck with loans meant for people with poor credit and end up paying thousands of dollars more than they need to.

If you are looking for a mortgage, this article will show how you can save thousands of dollars by shopping, comparing, and negotiating for the best deal.

Know your credit score

Today, too many people apply for a mortgage with their fingers crossed, hoping their credit will allow them to qualify for a loan. Not knowing what the current interest rates are for someone with your credit standing, can easily lead you to pay thousands of dollars more than you need to.

In fact, 75% of mortgage-lending decisions are based on your FICO score. So you need to obtain copies of your credit report and your FICO credit score before you even apply for a mortgage. You can order your FICO score on the web for a fee of $14.95, which includes a copy of your credit report. You can also see a listing of loan rates by credit score at MyFico.com.

Armed with your credit report and your FICO score, you now have the tools you need to shop, compare, and negotiate for the best deal.

Shopping around for the best deals

Home loans are available from several types of lenders and different lenders may quote you different prices, so you should contact several lenders to make sure you're getting the best price.

One of the easiest ways to shop around for quotes is to use the free services of a company like LoanWeb.com which has over 700 lenders and brokers in their national network of home loan experts. LoanWeb.com allows you to easily compare their mortgage options for new home purchases, refinance loans, debt consolidation loans, and home equity loans or home equity lines of credit. Using a simple online form that takes only a few minutes to complete, you can quickly shop for the best rates that fit your mortgage needs (examples: Excellent Credit, Good Credit, Fair Credit or Bad Credit; previous Bankruptcy or Foreclosure; low to zero down payments; 15 year or 30 year terms).

Getting the best deal

Knowing the amount of the monthly payment or the interest rate is not enough to find the best deal. You need to know how much down payment you can afford, and find out all the cost involved in the loan. For the same loan amount, you need to know the loan term, and type of loan so that you can compare the information you receive from several lenders or brokers.

Once you figure out what each lender has to offer, you can negotiate for the best deal. The fact is, on any given day, lenders and brokers may offer different prices for the same loan terms to different customers, even if those customers who are equally qualified for the same loan. The reason for this price difference is that loan officers and brokers are often allowed to keep this difference as extra compensation.

Usually, the difference between the lowest price available for a loan and the higher price the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to you. In order to minimize overages, you must ask the lender or broker to 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 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. Remember, there is no arm 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 the broker. Lock-ins can protect you from rate increases while your loan is being processed. However, if rates fall, you could end up with a less favorable rate. If this would happen, try to negotiate a compromise with the lender or broker. The lock-in should include the rate that you have agreed to, the period the lock-in last, and the number of points to be paid. A fee may be charged for locking in the loan rate. However, this fee may be refundable at closing.

Credit Problems? Still Shop, Compare, and Negotiate

If you have poor credit, don't assume that minor credit problems or difficulties coming from unique circumstances, such as illness or temporary loss of income, will limit your choices of loan to only high-cost lenders. Even people with bad credit can often qualify for better loans than they're typically offered. One option is to use mortgages offered by private-sector lenders instead of government loan programs, such as Federal Housing Administration (FHA) loans. You can find private-sector lender at LoanWeb.com. Remember take time to shop around and negotiate the best deal that you can.

You can save thousand of dollars on your loan if you shop, compare, and negotiate for the best deal. There are plenty of lenders or brokers who will work with you because they want your business. So don't settle for the first quote you get, but shop around.

Loan Calculator

This calculator is being provided for you to plan your next loan application. Use it to calculates your monthly loan payment.

The results of this loan payment calculator are for comparison purposes only. They will be a close approximation of actual loan repayments if available at the terms entered, from a financial institution.

To use, enter values for the Loan Amount, Number of Months for Loan, and the Interest Rate (e.g. 7.25), and click the Calculate button. Clicking the Reset button will clear entered values.

Enter only numeric values (no commas), using decimal points where needed.
Non-numeric values will cause errors.