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Dollar Diva's 10 tips for mortgage shoppers
By Dorothy Rosen
Bankrate.com

Here's my list of the top 10 things every mortgage shopper should know:

1. Credit reports often have mistakes on them.
2. Shop around for the best deal.
3. Lenders should give you a "good faith estimate" of the closing costs.
4. There may be fees left off the "good faith estimate."
5. Beware of "packing."
6.
Ask to have fees that go directly to the lender waived.
7.
If you put down less than 20 percent, you'll be expected to carry private mortgage insurance .
8.
Everyone doesn't get the same loan rate.
9.
Paying points doesn't always make sense.
10.
"Lock in" provisions vary by lender.

1. Credit reports often have mistakes on them. Get a copy of yours six months before you go mortgage shopping so you know what's on it. Get one for each spouse if you're married. You'll want to contact the big three credit reporting agencies for reports:

  • TransUnion:(800) 888-4213
  • Equifax: (800) 997-2493
  • Experian (formerly TRW): (888) 397-3742.

2. Shop around for the best deal. Check Bankrate.com for the average rates and annual percentage rates (APR) nationwide and in your state. When you do your shopping, use APRs rather than interest rates for a truer comparison.

3. Lenders should give you a "good faith estimate" of what the closing costs will be before you start the loan process. Closing costs are what you will pay over and above the cost of the house, and include points, appraisal fee, title search, recording fees, survey, transfer charges, property taxes and any other costs related to the deal. Read Bankrate.com's "Getting to the bottom line can be tricky business for mortgage applicants," for the skinny on this.

4. There may be fees left off the "good faith estimate" the lender gives you. Ask the lender to tell you about the fees that aren't listed, ask him to waive them, and get it in writing.

5. Beware of "packing." That's when a lender packs in charges for services you don't need, such as credit insurance. Read Bankrate.com's "Borrower beware: bad home equity loan can lead to foreclosure," and make sure you read all documents carefully before you sign them.

6. Ask to have fees that go directly to the lender, such as "document preparation charges," waived. There are plenty of fees that the lender pays to third parties for the benefit of the borrower, and it deserves to be reimbursed for them. However, it's the lender's job to prepare documents; the borrower shouldn't have to pay extra for that. For more on fees, read Bankrate.com's "Mortgages: Part I: Other house buying costs."

7. If you put down less than 20 percent, you'll be expected to carry private mortgage insurance (PMI). PMI protects the lender at the expense of the borrower, and borrowers hate it like poison. One way around PMI is to get two mortgages; one to get you to the 20 percent equity level, the other to cover the remaining 80 percent. The smaller loan can be expensive, because it carries more risk. To find out more about PMI and if two mortgages makes sense for you, read Bankrate.com's "Mortgages: Part I: Private Mortgage Insurance (PMI)."

8. Everyone doesn't get the same loan rate. To get a loan with a decent rate, your total debt to income ratio (how much you pay out each month for debts, such as mortgage, loans, alimony, credit cards divided by your gross monthly income) should not be more than 36 percent. Have some idea of how much house you can afford before you start shopping.

9. Paying points to reduce the loan rate doesn't always make sense. Use Bankrate.com's "Should you pay points on your mortgage" calculator to figure out how long it will take to recoup the cash you lay out for points. It usually doesn't make sense to pay points if you're only going to own your home for a couple of years.

10. "Lock in" provisions vary by lender. If interest rates are rising, you will want to "lock in" the rate as soon as possible; if they're falling, you'll want to delay as long as possible. For more on "lock in" provisions, read Bankrate.com's "Lock-and-float programs give home buyers peace of mind."

-- Posted: Dec. 27, 2000

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See Also
MAIN PAGE: Bankrate's Thrifty 50: Money tips for 2001
10 personal finance tips from Dr. Don
10 tax tips for 2001
10 small-business tips for 2001
10 tips for women from the Dollar Diva
 
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