5 Mortgage Tips

1. Know what you can afford.

Review your monthly spending plan to estimate
what you can afford to pay for a home, including the
mortgage, property taxes, insurance, and monthly
maintenance and utilities. A worksheet for developing
your monthly spending plan can be found at www.
federalreserve.gov/pubs/mortgage/MORBRO_2.
HTM#Worksheet1.

Make sure you save for emergencies.
Plan ahead to be sure you will be able to afford
your monthly payments for several years. Check your
credit report to make sure that the information in it
is accurate. A higher credit score may help you get a
lower interest rate on your mortgage. Find information
on getting a copy of your credit report at www.ftc.
gov/bcp/edu/pubs/consumer/credit/cre34.shtm .

2. Shop around—compare loans from lenders
and brokers.

Shopping takes time and energy, but not shopping
around can cost you thousands of dollars. You can get
a mortgage loan from mortgage lenders or mortgage
brokers. Brokers arrange mortgage loans with a lender
rather than lend money directly; in other words, brokers
sell you a loan from a lender. Neither lenders nor
brokers have to find the best loan for you—to find the
best loan, you have to do the shopping. For more information
on mortgage shopping, see Looking for the
Best Mortgage—Shop, Compare, Negotiate at www.
federalreserve.gov/pubs/mortgage/mortb_1.htm .

3. Understand loan prices and fees.

Many consumers accept the first loan offered and don’t
realize that they may be able to get a better loan. On
any given day, lenders and brokers may offer different
interest rates and fees to different consumers for the
same loan, even when those consumers have the same
loan qualifications. Keep in mind that lenders and brokers
also consider the profit they receive if you agree to
the terms of a loan with higher fees, higher points, or a
higher interest rate. Shopping around is your best way
to avoid more expensive loans.

4. Know the risks and benefits of loan options.

Mortgages have many features—some have fixed
5 Tips for Shopping for a Mortgage
interest rates and some have adjustable rates; some
have payment adjustments; on some you pay only the
interest on the loan for a while and then you pay down
the principal (the loan amount); some charge you a
penalty for paying the loan off early; and some have
a large payment due at the end of the loan (a balloon
payment). Consider all mortgage features, the APR
(annual percentage rate), and the settlement costs.
Ask your lender to calculate how much your monthly
payments could be a year from now, and 5 or 10 years
from now. A mortgage shopping worksheet can help
you identify the features of different loans. A sample
of a mortgage shopping worksheet can be found at
www.federalreserve.gov/pubs/mortgage/worksheet.
pdf . Mortgage calculators can help you compare
payments and the equity you could build with different
mortgage loans. See the Board’s mortgage calculator at
www.federalreserve.gov/apps/mortcalc/.

5. Get advice from trusted sources.

A mortgage loan is one of the most complex, most
expensive financial commitments you will ever
assume—it’s okay to ask for help. Talk with a trusted
housing counselor or a real estate attorney that you
hire to review your documents before you sign them.
You can find a list of counseling resources at NeighborWorks
(www. Nw.org/network/home.asp) and on
the U.S. Department of Housing and Urban Development’s
(HUD) website (www.hud.gov/offices/hsg/
sfh/hcc/hccprof14.cfm)
or by calling (800)569-4287.
The Federal Reserve Board
Visit www.federalreserve.gov/consumerinfo for more information on mortgage and other consumer topics.
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