Shopping aroundfor a home loanor mortgage will

help you to get the bestfinancing deal. A mort-gage—whether it’s a homepurchase, a refinancing, ora home equity loan—is aproduct, just like a car, sothe price and terms may benegotiable. You’ll want tocompare all the costs in-volved in obtaining a mort-gage. Shopping, comparing,and negotiating may saveyou thousands of dollars.

interest rate , or both. You should askeach broker you work with how he orshe will be compensated so that youcan compare the different fees. Beprepared to negotiate with the brokersas well as the lenders.

Obtain All ImportantCost InformationBe sure to get information aboutmortgages from several lenders orbrokers. Know how much of a downpayment you can afford, and find outall the costs involved in the loan.Knowing just the amount of themonthly payment or the interest rate isnot enough. Ask for information aboutthe same loan amount, loan term, andtype of loan so that you can comparethe information. The following informa-tion is important to get from eachlender and broker:

Rates

• Ask each lender and broker for alist of its current mortgage interestrates and whether the rates beingquoted are the lowest for that dayor week.

• Ask whether the rate is fixed oradjustable . Keep in mind that wheninterest rates for adjustable-rateloans go up, generally so does themonthly payment.

• If the rate quoted is for anadjustable-rate loan, ask how yourrate and loan payment will vary,including whether your loan pay-ment will be reduced when rates godown.

Obtain Informationfrom Several LendersHome loans are available from severaltypes of lenders—thrift institutions *,commercial banks, mortgage compa-nies, and credit unions. Differentlenders may quote you differentprices, so you should contact severallenders to make sure you’re gettingthe best price. You can also get ahome loan through a mortgage broker.Brokers arrange transactions ratherthan lending money directly; in otherwords, they find a lender for you. Abroker’s access to several lenders canmean a wider selection of loan prod-ucts and terms from which you canchoose. Brokers will generally contactseveral lenders regarding your appli-cation, but they are not obligated tofind the best deal for you unless theyhave contracted with you to act asyour agent. Consequently, you shouldconsider contacting more than onebroker, just as you should with banksor thrift institutions.

Whether you are dealing with a lenderor a broker may not always be clear.Some financial institutions operate asboth lenders and brokers. And mostbrokers’ advertisements do not use theword “broker.” Therefore, be sure toask whether a broker is involved. Thisinformation is important becausebrokers are usually paid a fee for theirservices that may be separate fromand in addition to the lender’s origina-tion or other fees. A broker’s compen-sation may be in the form of “points”paid at closing or as an add-on to your

Shop,Compare,Negotiate

Lookingfor theBest Mortgage?

*Words and terms appearing in bold in thetext are defined in the glossary.

• Ask about the loan’s annualpercentage rate (APR) . The APRtakes into account not only theinterest rate but also points, brokerfees, and certain other creditcharges that you may be requiredto pay, expressed as a yearly rate.

Points

Points are fees paid to the lender orbroker for the loan and are often linkedto the interest rate; usually the morepoints you pay, the lower the rate.

• Check your local newspaper forinformation about rates and pointscurrently being offered.

• Ask for points to be quoted to youas a dollar amount—rather than justas the number of points—so thatyou will actually know how muchyou will have to pay.

Fees

A home loan often involves many fees,such as loan origination or under-writing fees, broker fees, and trans-action, settlement, and closingcosts. Every lender or broker shouldbe able to give you an estimate of itsfees. Many of these fees are nego-tiable. Some fees are paid when youapply for a loan (such as applicationand appraisal fees), and others arepaid at closing. In some cases, youcan borrow the money needed to paythese fees, but doing so will increaseyour loan amount and total costs. “Nocost” loans are sometimes available,but they usually involve higher rates.

• Ask what each fee includes.Several items may be lumped intoone fee.

• Ask for an explanation of any feeyou do not understand. Somecommon fees associated with ahome loan closing are listed on theMortgage Shopping Worksheet inthis brochure.

Down Payments andPrivate Mortgage Insurance

Some lenders require 20 percent ofthe home’s purchase price as a downpayment. However, many lenders nowoffer loans that require less than 20percent down—sometimes as little as5 percent on conventional loans . If a20 percent down payment is notmade, lenders usually require thehome buyer to purchase privatemortgage insurance (PMI) to protectthe lender in case the home buyer failsto pay. When government-assistedprograms such as FHA (FederalHousing Administration), VA (VeteransAdministration), or Rural DevelopmentServices are available, the downpayment requirements may be sub-stantially smaller.

• Ask about the lender’srequirements for a down payment,including what you need to do toverify that funds for your downpayment are available.

• Ask your lender about specialprograms it may offer.

If PMI is required for your loan,

• Ask what the total cost of theinsurance will be.

• Ask how much your monthlypayment will be when including thePMI premium.

• Ask how long you will be required tocarry PMI.

Obtain the Best DealThat You CanOnce you know what each lender hasto offer, negotiate for the best deal thatyou can. On any given day, lendersand brokers may offer different pricesfor the same loan terms to differentconsumers, even if those consumershave the same loan qualifications. Themost likely reason for this difference inprice is that loan officers and brokersare often allowed to keep some or allof this difference as extra compensa-tion. Generally, the difference betweenthe lowest available price for a loanproduct and any higher price that theborrower agrees to pay is an overage .When overages occur, they are builtinto the prices quoted to consumers.They can occur in both fixed andvariable-rate loans and can be in theform of points, fees, or the interestrate. Whether quoted to you by a loanofficer or a broker, the price of anyloan may contain overages.

Have the lender or broker write downall the costs associated with the loan.Then ask if the lender or broker willwaive or reduce one or more of itsfees or agree to a lower rate or fewerpoints. You’ll want to make sure thatthe lender or broker is not agreeing tolower one fee while raising another orto lower the rate while raising points.There’s no harm in asking lenders orbrokers if they can give better termsthan the original ones they quoted orthan those you have found elsewhere.

Once you are satisfied with the termsyou have negotiated, you may want toobtain a written lock-in from thelender or broker. The lock-in should

include the rate that you have agreedupon, the period the lock-in lasts, andthe number of points to be paid. A feemay be charged for locking in the loanrate. This fee may be refundable atclosing. Lock-ins can protect you fromrate increases while your loan is beingprocessed; if rates fall, however, youcould end up with a less favorablerate. Should that happen, try tonegotiate a compromise with thelender or broker.

Remember:Shop, Compare,NegotiateWhen buying a home, remember toshop around, to compare costs andterms, and to negotiate for the bestdeal. Your local newspaper and theInternet are good places to startshopping for a loan. You can usuallyfind information both on interest ratesand on points for several lenders.Since rates and points can changedaily, you’ll want to check your news-paper often when shopping for a homeloan. But the newspaper does not listthe fees, so be sure to ask the lendersabout them.

The Mortgage Shopping Worksheetthat follows may also help you. Take it

with you when you speak to eachlender or broker and write down theinformation you obtain. Don’t be afraidto make lenders and brokers competewith each other for your business byletting them know that you are shop-ping for the best deal.

Fair Lending IsRequired by LawThe Equal Credit Opportunity Actprohibits lenders from discriminatingagainst credit applicants in any aspectof a credit transaction on the basis ofrace, color, religion, national origin,sex, marital status, age, whether all orpart of the applicant’s income comesfrom a public assistance program, orwhether the applicant has in good faithexercised a right under the ConsumerCredit Protection Act.

The Fair Housing Act prohibits dis-crimination in residential real estatetransactions on the basis of race,color, religion, sex, handicap, familialstatus, or national origin.

Under these laws, a consumer cannotbe refused a loan based on thesecharacteristics nor be charged morefor a loan or offered less favorableterms based on such characteristics.

Credit Problems?Still Shop, Compare,and NegotiateDon’t assume that minor credit prob-lems or difficulties stemming fromunique circumstances, such as illnessor temporary loss of income, will limityour loan choices to only high-costlenders.

If your credit report contains negativeinformation that is accurate, but thereare good reasons for trusting you torepay a loan, be sure to explain yoursituation to the lender or broker. If yourcredit problems cannot be explained,you will probably have to pay morethan borrowers who have good credithistories. But don’t assume that theonly way to get credit is to pay a highprice. Ask how your past credit historyaffects the price of your loan and whatyou would need to do to get a betterprice. Take the time to shop aroundand negotiate the best deal that youcan.

Whether you have credit problems ornot, it’s a good idea to review yourcredit report for accuracy and com-pleteness before you apply for a loan.To order a copy of your credit report,contact:

Equifax: (800) 685-1111TransUnion: (800) 916-8800Experian: (800) 682-7654

Glossary

Adjustable-rate loans , also known asvariable-rate loans, usually offera lower initial interest rate thanfixed-rate loans. The interest ratefluctuates over the life of the loanbased on market conditions, butthe loan agreement generallysets maximum and minimumrates. When interest rates rise,generally so do your loan pay-ments; and when interest ratesfall, your monthly payments maybe lowered.

Annual percentage rate (APR) is thecost of credit expressed as ayearly rate. The APR includesthe interest rate, points, brokerfees, and certain other creditcharges that the borrower isrequired to pay.

Conventional loans are mortgageloans other than those insured orguaranteed by a governmentagency such as the FHA (Fed-eral Housing Administration), theVA (Veterans Administration), orthe Rural Development Services(formerly know as FarmersHome Administration, or FmHA).

Escrow is the holding of money ordocuments by a neutral thirdparty prior to closing. It can alsobe an account held by the lender(or servicer) into which a home-owner pays money for taxes andinsurance.

Fixed-rate loans generally haverepayment terms of 15, 20, or 30

years. Both the interest rate andthe monthly payments (forprincipal and interest) stay thesame during the life of the loan.

The interest rate is the cost ofborrowing money expressed as apercentage rate. Interest ratescan change because of marketconditions.

Loan origination fees are feescharged by the lender for pro-cessing the loan and are oftenexpressed as a percentage ofthe loan amount.

Lock-in refers to a written agreementguaranteeing a home buyer aspecific interest rate on a homeloan provided that the loan isclosed within a certain period oftime, such as 60 or 90 days.Often the agreement alsospecifies the number of points tobe paid at closing.

A mortgage is a document signed bya borrower when a home loan ismade that gives the lender aright to take possession of theproperty if the borrower fails topay off on the loan.

Overages are the difference betweenthe lowest available price andany higher price that the homebuyer agrees to pay for the loan.Loan officers and brokers areoften allowed to keep some or allof this difference as extra com-pensation.

Points are fees paid to the lender forthe loan. One point equals 1percent of the loan amount.Points are usually paid in cash atclosing. In some cases, themoney needed to pay points canbe borrowed, but doing so willincrease the loan amount andthe total costs.

Private mortgage insurance (PMI )protects the lender against a lossif a borrower defaults on theloan. It is usually required forloans in which the down paymentis less than 20 percent of thesales price or, in a refinancing,when the amount financed isgreater than 80 percent of theappraised value.

Thrift institution is a general term forsavings banks and savings andloan associations.

Transaction, settlement, or closingcosts may include applicationfees; title examination, abstractof title, title insurance, andproperty survey fees; fees forpreparing deeds, mortgages, andsettlement documents; attorneys’fees; recording fees; and notary,appraisal, and credit report fees.Under the Real Estate Settle-ment Procedures Act, theborrower receives a good faithestimate of closing costs at thetime of application or within threedays of application. The goodfaith estimate lists each expectedcost either as an amount or arange.

Mortgage Shopping WorksheetLender 1 Lender 2

Name of Lender: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Name of Contact: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Date of Contact: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mortgage Amount: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mortgage 1 mortgage 2 mortgage 1 mortgage 2Basic Information on the Loans

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FeesDifferent institutions may have different names for somefees and may charge different fees. We have listedsome typical fees you may see on loan documents.

Application fee or Loan processing fee . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Costs at Closing/Settlement

Title search/Title insuranceFor 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) . . . . . . . . . . . . .

Surveys and home inspections . . . . . . . . . . . . . . . . . . . . . .

Total Fees and Other Closing/Settlement CostEstimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mortgage Shopping Worksheet—continuedLender 1 Lender 2

Name of Lender: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mortgage 1 mortgage 2 mortgage 1 mortgage 2Other Questions and Considerationsabout the Loan

Are any of the fees or costs waivable? . . . . . . . . . . . . . . . .

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? . . . . . . . . . . . . . . . .

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 alower rate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

If the loan is an adjustable rate mortgage:

What is the initial rate? . . . . . . . . . . . . . . . . . . . . . . . . . . . .

What is the maximum the rate could be next year? . . . . . .

What are the rate and payment caps each year andover the life of the loan? . . . . . . . . . . . . . . . . . . . . . . . . .

What is the frequency of rate change and of anychanges to the monthly payment? . . . . . . . . . . . . . . . . .

What is the index that the lender will use? . . . . . . . . . . . . .

What margin will the lender add to the index? . . . . . . . . . .

Credit life insurance

Does the monthly amount quoted to you includea charge for credit life insurance? . . . . . . . . . . . . . . . . .

If so, does the lender require credit life insuranceas a condition of the loan? . . . . . . . . . . . . . . . . . . . . . . .

How much does the credit life insurance cost? . . . . . . . . . .

How much lower would your monthly payment bewithout the credit life insurance? . . . . . . . . . . . . . . . . . .

If the lender does not require credit life insurance, andyou still want to buy it, what rates can you getfrom other insurance providers? . . . . . . . . . . . . . . . . . .

This brochure was prepared by the following agencies:

Department of Housing and Urban DevelopmentDepartment of JusticeDepartment of the Treasury

Federal Deposit Insurance CorporationFederal Housing Finance BoardFederal Reserve Board

Federal Trade CommissionNational Credit Union AdministrationOffice of Federal Housing Enterprise Oversight

Office of the Comptroller of the CurrencyOffice of Thrift Supervision

These agencies (except the Department of the Treasury)enforce compliance with laws that prohibit discrimination inlending. If you feel that you have been discriminatedagainst in the home financing process, you may want tocontact one of the agencies listed above about your rightsunder these laws.

For more information on home lending issues , visit(http://www.consumer.gov), write to the Consumer Informa-tion Center, Pueblo, CO 81009 or visit the Center’s Website at (http://www.pueblo.gsa.gov). The following brochuresare available from the Center:

A Consumer’s Guide to Mortgage Lock-InsA Consumer’s Guide to Mortgage Refinancing

Buying Your Home: Settlement Costs and HelpfulInformation

Consumer Handbook on Adjustable Rate MortgagesGuide to Single Family Home Mortgage InsuranceHome Buyer’s Vocabulary

Home Mortgages: Understanding the Process and YourRights to Fair Lending

How to Buy a Home with a Low Down PaymentHow to Dispute Credit Report ErrorsThe HUD Home Buying Guide

When Your Home Is on the Line

Shop,Compare,Negotiate Looking for the Best Mortgage?

FRB1-750000,0199C