- 1). Fill out a mortgage application with a local lender. Be sure to bring two months of your bank statements (all pages), two months of pay stubs and two years of tax returns for all borrowers.
- 2). Request a copy of the Truth in Lending Statement from the lender, along with a Good Faith Estimate on the loan.
- 3). Read through the Truth in Lending Statement carefully, focusing on the annual percentage rate (APR). This is the numerical representation of the total cost of the loan for one full year, including fees and the monthly interest rate. The lower the APR, the lower the overall cost of the loan. Even if one mortgage has a lower monthly interest rate than another, if its APR is higher it is a more expensive loan.
- 4). Read through the Good Faith Estimate. This form is an outline of all the fees and basic information associated with the loan. It goes into great detail about each fee to show the borrower the entire cost of the loan. If the monthly interest rate is lower for one mortgage compared with another, but the total closing costs are higher, it is a more expensive loan.
- 5). Choose the loan with the lowest APR that best fits the borrower's payment and risk needs. If the borrower is risk-adverse, he should choose a 30-year fixed payment. If he is willing to take a risk, the borrower should look into an adjustable rate mortgage with a lower interest.
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