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Compare Loans

Section 4 - Chapter 16 (continuation)

Compare loans to start, but then negotiate an even better loan. If it is a competitive market, as it is right now (2006), lenders know that you have other options. Remind them if you have to. This is how you get them to take you seriously.

Ask many questions. Is there any way to get the interest rate lower? Is there any way to save on the fees? Is there a way to eliminate some of the charges, like the appraisal fee or mortgage insurance?

As you look at each charge on the good faith estimate, ask what it is for, and if all lenders charge this. You know they don't, of course, but you are subtly reminding the lender that you have options. Knowing what those other options are is your best negotiating tool, so get educated.

- What is the interest rate?

- What is the APR? (annual percentage rate, which includes fees, points and mortgage insurance)

- What is the initial rate? (if it is an ARM - adjustable rate mortgage)

- What is the highest the rate can go to next year? (ARM)

- What are the annual and lifetime caps on the interest rate and payment? (ARM)

- How often is the rate or payment adjusted, and when? (ARM)

- What index is the rate based on? (ARM)

- What margin is added to the index? (ARM - it might be the index plus 3%, for example)

- Is credit life insurance required? (this pays off the loan if you die)

- How much would the payment be without it?

- Can any of the fees or costs be waived?

- Is there a prepayment penalty?

- How much is the prepayment penalty?

- For how long is the penalty in force?

- Are extra principal payments allowed?

- Is there an interest rate lock-in available? (guarantees the interest rate until a certain time)

- Can you have the lock-in in writing?

- Is the rate locked in at time of application or time of approval?

- If rates drop, can you get a lower rate locked-in?

- What inspections and/or surveys does the lender require?

- What kind of title search and/or title insurance does the lender require? The cost?

- Can you get an estimate of prepaid amounts that you'll have to pay at closing?

- Are there "points" on this loan? How much will this cost? (discount points to reduce interest rate)

- What state taxes, local taxes, stamp taxes and transfer taxes will you have to pay?

- Will a flood determination be required? (to see if the home needs flood insurance)

- What other costs will there be?

Take notes, and write down the name and phone number of the lender. Ask the same questions of all lenders you visit, so you can fairly compare loans that they have to offer.

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