5 Tips for Shopping for a Mortgage by the Federal Reserve

Mortgage Tips via Federal Reserve

The Federal Reserve -casually called “The Feds” -  advices consumers with 5 tips on how to shop for a mortgage.  What is it they suggest

1. Know what you can afford -  Run your numbers: How much money do you have coming in? What are your monthly expenses (insurance, utilities, car, credit card debt)? Do  you have enough in emergency savings put aside? It is easier if you use this monthly spending form to help you get all the data sorted and analyzed. The CNN “What can I afford?” calculator can help you as well. Then find out your credit score. You should order a credit report once a year anyway to keep in your records. To get your credit report visit annualcreditreport.com,or call 1-877-322-8228. Make sure you don’t pay anything. These reports are free – unless you want to also find out your credit score.
2. Shop around–compare loans from lenders and brokers. – You can turn to a lender i.e. a bank to see what the bank offers you or you can turn to a broker. Neither one is required to find you the best deal, in the end YOU will have to know what it your best deal. Here is another link on how to find the best deal by the Federal Reserve
3. Understand Loan Prices and Fees. – Many consumers accept the first loan offered and don’t realize that they may be able to get a better loan. On any given day, lenders and brokers may offer different interest rates and fees to different consumers for the same loan, even when those consumers have the same loan qualifications. Keep in mind that lenders and brokers also consider the profit they receive if you agree to the terms of a loan with higher fees, higher points, or a higher interest rate. Shopping around is your best way to avoid more expensive loans.
4. Know the risks and benefits of loan options - Mortgages have many features–some have fixed interest rates and some have adjustable rates; some have payment adjustments; on some you pay only the interest on the loan for a while and then you pay down the principal (the loan amount); some charge you a penalty for paying the loan off early; and some have a large payment due at the end of the loan (a balloon payment). Consider all mortgage features, the APR (annual percentage rate), and the settlement costs. Ask your lender to calculate how much your monthly payments could be a year from now, and 5 or 10 years from now. A mortgage shopping worksheet (33 KB PDF) can help you identify the features of different loans. Mortgage calculators can help you compare payments and the equity you could build with different mortgage loans.
5. Get advice from trusted sources – A mortgage loan is one of the most complex, most expensive financial commitments you will ever assume–it’s okay to ask for help. Talk with a trusted housing counselor or a real estate attorney that you hire to review your documents before you sign them. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development’s (HUD) website or by calling (800) 569-4287.

I am very pleased with the advice and tools the Federal Reserve displays. Nevertheless, I do need to add just a little bit: A reputable broker will find you the best deal he can and will be happy to explain ALL the fees to you. It is crucial that you ask as many questions as possible. There are no stupid questions – just stupid answers. And YES, in the end you are the one making the decision and you will have to live with it for possibly the next 30 years.

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