Ask for referrals. There’s no one easy way to find a lender, so it’s best to hit up friends and family for recommendations. (You want a provider that has good customer service.) Or ask your real estate agent for loan-officer suggestions. And make inquiries at local credit unions, whether you’re a current member or not. They often have rock-bottom rates if you qualify for membership, and it’s typically easy to join. (Go to ncua.gov to find one.)
Calculate your down payment. To avoid having to buy private mortgage insurance, you need to pay at least 20% of the purchase price before closing costs.
Obtain quotes from at lest three lenders. Consult both with mortgage bankers (who work in-house with big institutions, like J. P. Morgan Chase and Wells Fargo) and with mortgage brokers (who shop around with all lenders) to get the best interest rate. Ask each loan officer how much her institution charges for closing expenses, including the underwriting fee and the cost of faxing documents. (Charges vary; go to Bankrate.com to see the average for your state.) Make sure you borrow the money from someone who is accessible and willing to take the time to explain the loan-approval process. She is more likely to be honest about all the costs. And remember to ask the lender if putting more money down can land you a better rate.
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Decide if you want to pay points to lower your rate. Sometimes a bank will let you buy prepaid interest (points, in finance-speak) in exchange for a reduced interest rate. Points aren’t cheap. Each one will cost you 1% of the loan amount. So if you’re buying a home that costs $273,000 (the national average) with 20% down, then you’ll have to pay $2,184 per point. Don’t have that much cash on hand? Ask about purchasing a half or even a quarter point. “If you’re going to stay in the house for at least nine years and you can afford to do so, it makes sense to shoulder the extra expense up front, as it will cost you less in the long run,” says Jack Guttentag, a professor emeritus of finance at the Wharton School of the University of Pennsylvania. Go to mtgprofessor.com to calculate if this is a good option for you.