Are you planning to shop for a home loan? Whether you should visit a bank or a mortgage broker? Which one is more flexible for you? What are the facts that you must be aware of? Is your mind boggling with many such questions? Any uncertainity within you may lead to a wrong decision. Of course you don’t want to take unprofitable decisions so here are the answers to all your questions.

1. Bank or mortgage broker or credit union

When you plan to finance a house then your first impulse pulls you to a bank. At times banks may seem inflexible if compared to mortgage broker or credit unions. Credit unions are known for their firmness and services and hence people rely on them for such deals. Mortgage loans from mortgage brokers offer high flexibility because they deal only in loans. They are unlike banks that also deal in customer deposits, insurance etc.

2. Clarify all your doubts

While dealing with a mortgage broker, don’t accept the rates at their face value. Clarify all doubts that you may have. Ask about all the charges that have been listed and try to negotiate for a lower fee for certain items. A Good Faith Estimate is fairly accurate but still you must leave no stone unturned to bargain and reduce the fees and charges to some extent. Don’t confuse mortgage rates with annual percentage rate (APR). APR includes all costs of a home loan. On comparing two identical mortgage loans you find that one of the APR is higher than the other then choose the one with the lower upfront cost. Citibank’s Home Saver deal is an index linked home loan which offers you a range of index tenures in the market, starting from 1 month to 3 years. You get the flexibility to switch from one index to the other at any point of time. Stanchart has launched a service which provides in principle approval for a mortgage loan within an hour if you are able to provide information about your annual income and property valuation.

3. Negotiate the home loan interest

It is highly important to note that the home loan interest rate is negotiable. What is interest rate to you is profit for the broker.  The interest to you is directly proportional to the profit of the broker. You must ask the broker about his origination fee or yield spread is. Mostly the yield spread is 1% of the total loan amount. If the broker is getting something more than 1% then you can request him to offer you some waiver.  You must look into features as the lock- in period, penalties for partial redemption and legal fee subsidies in a bank. If the loan is from a bank then the deposits can be used to offset their loan account so that they pay only the loan interest on the difference as in case of Stanchart’s Mortgage One Optimizer. This allows you to lower the loan term without additional installment payments.

If you have some cash in hand then you must make a down payment and bring down the rate of interest by a few points. Suppose your loan amounts to $100,000 then you pay some of the money in cash and reduce the rate of interest there and then. You may also pay the loan interest and not any of the principal for a period of 3 years and in the 4^th year the loan would revert to a normal interest rate plus principal loan and follow the 4^th year rate of the package.

4. Other details  

A HUD-1 settlement statement should be provided by the broker, to you within 24 hours of the closing. The statement would be a lay out of all the various charges and fees to you including specific line items and dollar amounts. You need to keep a check that no extra amount is added to the list. To approve loans, banks generally use debt servicing ratio, which is a percentage of your monthly income used to service long term liabilities. The acceptable debt servicing ratio is 35% but different banks have different ratios.

 So, what are you waiting for? Start doing your research to acquire a home loan for your dream house.