Negotiating a Home Mortgage Loan

• Author: Daniel A Edelman
• Profession: Lawyer
• Pages: 13-16

13

Negotiating a Home

Mortgage Loan

CHAPTER

4

If you are looking for a home mortgage, the most important advice is to shop around for the best rate.

Compare the annual percentage rates (APRs) offered by various lenders and brokers. This may be the

largest and most important loan you get during your lifetime.

The law entitles you to a good-faith estimate setting forth all loan and settlement charges before you

agree to the loan and pay any fees (Real Estate Settlement Procedures Act, 12 U.S.C. §2601 et seq.). You

have the right to know what fees are not refundable if you decide to cancel or not proceed with the loan

agreement.

Check if you are eligible for a loan insured through the Federal Housing Administration (FHA) or

guaranteed by the Department of Veterans Affairs or similar programs operated by cities or states. These

programs usually require a smaller down payment. Under FHA programs, for example, persons with a

Fair Isaac Corporation (FICO) score above 580 may qualify for a 3.5 percent down payment. Borrowers

with lower scores may have to put down at least 10 percent. There is an upfront charge of 2.25 percent

for mortgage insurance.

Mortgage loans can have a fixed-interest rate or a variable-interest rate. Fixed-rate loans have the

same principal and interest payments throughout the duration of the loan term. Variable-rate loans, or

adjustable-rate mortgages, can have any one of a number of “indexes” and “margins” that will determine

how and when the rate and payment amount change. The length of the loan can be up to forty years.

Loans may have equal monthly payments, changing payments, or a large “balloon” payments after a

certain number of years.

The price of a home mortgage loan is often stated in terms of an interest rate, points, and other fees.

A “point” is a fee that equals 1 percent of the loan amount. Often, you can pay fewer points in exchange

for a higher interest rate or more points for a lower rate.

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