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Shopping for a Home Mortgage in Northern Virginia

Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage — whether it’s a home purchase, a refinancing, or a home equity loan — is a product, just like a car, so the price and terms may be negotiable. You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.

There is quite a bit of information here that may make you want to skip it because it's just too much to deal with. After all, this is the internet where we like bit-sized chunks that can be dealt with in two minutes. You are considering spending a load of money. Go through this; make notes; and get questions answered.

Obtain Information from Several Lenders
Home loans are available from several types of lenders — 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 you’re getting the best price. You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly. In other words, they find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers may contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.
Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word “broker.” Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender’s origination or other fees. A broker’s compensation may be in the form of “points” paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.

Obtain All Important Cost Information
Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information.

Interest Rates
Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day. Ask whether the rate is fixed or adjustable. What is the difference between a fixed loan and adjustable rate mortgage? Keep in mind that when interest rates for adjustable-rate loans go up, so does the monthly payment. If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
Ask about the loan’s annual percentage rate (APR). The APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.

Points
Points are fees paid to the lender or broker for the loan and are often linked to the interest rate. Usually the more points you pay, the lower the rate. Check your local newspaper or here for information about rates and points currently being offered. When you know what the loan amount is, 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.

Fees
A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should give you an estimate of the fees in a "Good Faith Estimate". Some of these fees may be negotiable. Some fees are paid when you apply for a loan, and others are paid at closing. Ask what each fee includes. Several items may be lumped into one fee. Ask for an explanation of any fee you do not understand.

Down Payments and Private Mortgage Insurance
Downpayments can vary. Many lenders now offer loans that require less than 20 percent down. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller.
Ask about the lender’s requirements for a down payment, including what you need to do to verify that funds for your down payment are available.

Ask your lender about special programs it may offer.
Is PMI is required for your loan?
Ask what the total cost of the insurance will be.
Ask how much your monthly payment will be when including the PMI premium.
Ask how long you will be required to carry PMI.

Credit Problems? Still Shop, Compare, and Negotiate
Don’t assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders. If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. But don’t assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take the time to shop around and negotiate the best deal that you can. Whether you have credit problems or not, it’s a good idea to review your credit report for accuracy and completeness before you apply for a loan.

Basic Information You Want or Some Questions To Ask the Lender Regarding Loans. This is just a sampling. There could be more.

Type of Mortgage: fixed rate, adjustable rate, conventional, FHA, other? If adjustable, see below
Minimum down payment required
Loan term (length of loan)
Contract interest rate
Annual percentage rate (APR)
Points (may be called loan discount points)
Monthly Private Mortgage Insurance (PMI) premiums
How long must you keep PMI?
Estimated monthly escrow for taxes and hazard insurance
Estimated monthly payment (Principal, Interest, Taxes, Insurance, PMI)
Fees -- Different institutions may have different names for some fees and may charge different fees.
Application fee or Loan processing fee
Loan origination fee or Underwriting fee
Lender fee or Funding fee
Appraisal fee
Attorney fees
Document preparation and recording fees
Broker fees (may be quoted as points, origination fees, or interest rate add-on)
Credit report fee
Other fees
Title search/Title insurance For lender? For you?
Estimated prepaid amounts for interest, taxes, hazard insurance, payments to escrow
State and local taxes, stamp taxes, transfer taxes
Flood determination
Prepaid Private Mortgage Insurance (PMI)
Prepayment penalties Is there a prepayment penalty? If so, how much is it? How long does the penalty period last? (for example, 3 years? 5 years?)
Are extra principal payments allowed?
Rate lock-ins -- Is the lock-in agreement in writing?
Is there a fee to lock-in?
When does the lock-in occur—at application, approval, or another time?
How long will the lock-in last?
If the rate drops before closing, can you lock-in at a lower rate?
If the loan is an adjustable rate mortgage (you probably don't want this kind of loan):
- What is the initial rate?
- What is the maximum the rate could be next year?
- What are the rate and payment caps each year and over the life of the loan?
- What is the frequency of rate change and of any changes to the monthly payment?
- What is the index that the lender will use?
- What margin will the lender add to the index?

All of the above information is subject to change. You must do your own research with lenders to get the current information on their loan programs.