Pick the Right Mortgage

Time spent shopping for a mortgage is time well spent. A good deal can yield dramatic dividends in the short run and over time if monthly savings are invested elsewhere. Before you rule out one loan or another, read through this chapter and give some thought to your particular needs and aspirations.

Because you obtained preapproval before house hunting, you're ahead of the game. Financial papers are at hand and up to date, and you know the general parameters (size and types) of mortgages you qualify for. But don't head back to the lender from whom you received preapproval without shopping further.

The message is simple: Shop for a loan, not a lender. Mortgage lending is mechanical, impersonal and competitive. Hunt for the best loan—interest rate, points, processing costs and, on adjustable mortgages, the most favorable adjustment features. Don't pay much attention to who's originating the loan or where the lender is.

And don't place too much value on your current bank or thrift relationship, either. Odds are your loan will be sold once or twice over its term. (The firm servicing your new loan—collecting payments and holding taxes and homeowners insurance in escrow—may change as well.)

The next chapter explains how to shop for a mortgage—who originates them and how to use mortgage reporting or finding services. But before you go into the market, read this chapter to familiarize yourself with the choices and narrow your search to the kinds of loans that best meet your needs.

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Compare interest rates by asking for the annual percentage rate (APR) of the loans you're considering.

Learn the pros and cons of fixed-rate and adjustable-rate borrowing. Get acquainted with the jargon of the mortgage business. Then you can ask lenders the right questions and compare confusing offers before putting yourself on the line.

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