Lenders are required by legislation to provide customers with an APR (annual percentage rate) for each loan they supply. This rate tells you what the total annual cost of a loan will be, including broker charges, interest rate, points and other credit fees. To exemplify, all things being equal, a loan with an APR of 6% will be expensive, in the long run, than a loan with a 5.5 percent APR.. This is useful because it gives you a bottom-line number you can use to quickly and easily compare the real cost of loans.
Shop around for loans. Ask for quotes from several lenders. Ask for the APR of each loan as well as a thorough list of all charges, rates and costs. Write down this data in a spreadsheet so it is easy to compare loans. The Federal Reserve Board has a useful mortgage shopping worksheet you may download and print.
Evaluate the APR of each loan. Before concluding the loan with the lowest APR is your best price, examine the additional fees and rates. The legislation allows some wiggle room for creditors when calculating a loan’s APR, therefore affirm there are no hidden charges your lender decided to not include. For instance, a lender isn’t required to incorporate the cost of home inspections, appraisal fees, document preparation and credit reports in an APR..
Add up all of the additional expenses and charges not included in each loan APR.. This will provide you with an APR plus costs value for each loan. Compare the APR speed and additional closing costs of each loan to choose that is the best mortgage for you. Normally, the loan with the lowest APR is the most affordable, but it is worth confirming the cost of charges not included in the APR before making your decision.
Evaluate the initial price tag of each mortgage. A mortgage may have a low APR but require a huge initial investment in factors (prepaid interest extended in exchange for a discounted interest rate). If you can afford it and intend to keep in the home for the long run, this isn’t a issue. Any prepaid interest will save you money in the overall cost of this loan. But if you’re already struggling to pay for the down payment and fundamental closing costs, or intend to flip the home for profit as soon as you can, then a low APR may not be your main priority.