Compare Lending Offers
Going to your bank and accepting the first offer they give you may be not the wisest thing to do. You can negotiate your mortgage, and should check with other lenders too. Benefits of hiring a mortgage broker are quite often misunderstood.
How To Shop Around
Using A Mortgage Broker
Your another option is hiring a mortgage broker who will do the shopping for you. A nice thing about using a broker is that you don't have to do anything.
While you sit back and relax the broker will work with different lenders trying to get you the best deal.
Some consumers mistakenly think that brokers are the only and an expensive solution for people turned down by banks.
In reality, homebuyers who hold a full-time job, have a small debt and a decent credit history are very likely to find a good mortgage through a broker.
Brokers can search a large number of lenders, and often get discounted interest rates for selling a high volume of mortgages.
Lenders usually pay a commission between 0.5% and 1.20% for prime clients. If you have a poor credit history a broker may find you a private lender. The fee will be much higher, and you have to pay it yourself.
Whatever your situation is ensure you have a contract featuring all charges which may apply to you. Some brokers ask for a cancellation fee of $300 to 1% if you back out after being approved.
These penalties are intended to limit cancellations which increase broker's risk of loosing special discounts with a lender and the ability to compete.
If you decide to use broker's services, visit the site of The Association of Mortgage Professionals where you can find mortgage brokers operating in your area.
There are three types of lenders - A, B, and private.
'A' lenders offer the best interest rates. Your gds and tds ratios have to be within acceptable limits, you must have a good credit rating, and a reliable job.
If you are rejected by them due to a poor credit history, undocumented income, have no credit history, or are a discharged bankrupt you may consider type 'B' or private mortgage lenders.
Subprime lending ('B' and private) is often the last resort for homeowners who were denied equity financing or mortgage renewal by 'A' lenders.
'B' lenders charge around 1-3% more interest than 'A' lenders, and the finder's fee is around 2% of the mortgage amount.
Private lending is much more expensive. Interest rates usually are between 10-18%, and extra fees are at least 3%.
Although the subprime lending is no cheap proposition, it offers a viable financing substitute to those who were rejected by 'A' lenders but still can afford higher borrowing costs.
After staying with an alternative lender for a term or two they can renew their financing on better terms with a traditional 'A' lender.