Mortgage shopping: Compare apples to apples
Before you let yourself think you are seeing a good deal while
shopping for a home loan, first make sure you are comparing Apples to
Apples, and you will get the pricing you deserve. A few simple
shopping tips can save you lots of time, heartache and perhaps
thousands of dollars.
Your goal should be to find the lowest total cost for the rate that
you select for the loan product that you select. Take it step-by-step
and compare 'apples to apples'; make sure there are no 'oranges' thrown
in. Frequently people claim they have found an unbelievably low rate
or low fees some place, but when rate and fees are legitimately
evaluated and compared, apples to apples, it usually becomes clear
that the deal is not such a bargain.
Most people only search for a mortgage once every few years and they
generally come into the marketplace with some concepts in mind from
the last mortgage experience about the 'right way' to shop for a
loan. Some people focus on rate, some on APR, some on fees, some on
written guarantees. Unscrupulous lenders are anxious to meet each and
every 'single factor' shopper. Here are some basic tips to help with
shopping for a mortgage:
Comparing Rates
Comparing Fees
Comparing Loan Products
Comparing Lock Periods
Comparing Written Estimates
Comparing Rates
Pick any currently competitive rate and shop the exact same interest
rate (6.750% vs. 6.750% or 6.500% vs. 6.500%, etc.) for each
lender. Then compare only the loan fees. This means the '800-series'
amounts on your Good Faith Estimate. Comparing the same rate is very
important because rate determines fees. So the lesson is: Do not
compare the fees for one lenderšs 6.500% rate against another lenderšs
fees for their 6.625% rate. That would be apples and oranges! rates
change daily with market conditions so it is important to make
same-day comparisons, or even same-hour comparisons. Comparing a rate
you get today from one lender with the rate you got from another
lender yesterday is almost certain to be different and is therefore
apples and oranges. Compare each lender's total charges for the same
loan product, at the same rate, at the same time and, for the same
lock period.
Do not be concerned with prepaid interest, insurance or taxes. They
are determined by the month, if your taxes and insurance are impounded
(escrowed), and the day of the month that your loan closes. These
charges will be the same with every lender regardless of the amounts
estimated on various Good Faith Estimates.
Remember when shopping lenders you are only shopping for rate and Loan
fees. Do not choose your lender based on their estimate of title fees,
settlement fees or recording fees. Your local providers solely
determine your title and settlement fees. Recording fees are
determined by local government policy and will also be exactly the
same with every lender when the loan closes, regardless of the amounts
estimated on various Good Faith Estimates.
Comparing Fees
Insist that all lenders itemize and total all their Loan Fees. Some
lenders wrap them up into one bundle and hope you ask few
questions. Other lenders break them out into many little
meaningless names, all with the same hope: that you won't ask too
many questions. You probably don't want to let them off that easy.
Fee names will vary somewhat between your Good Faith Estimates
(GFEs). Try to be sure about what is being charged for what service
when comparing Apples to Apples; a bundled or totaled fee compared
with a line-item fee is comparing Apples to Oranges for certain.
Insist that all fees directly associated with the loan be identified,
including loan fees that may be charged by third parties and not by
the lender, such as: Appraisal, Credit, Tax Service, Flood
Certification and Document Fees.
Comparing Loan Products
Banks, mortgage brokers and other direct lenders get their funds from
the same secondary market sources. A "direct" lender is usually not
cheaper than a broker. Brokers get a wholesale discount from the
secondary market resources, and due to lower overhead costs and profit
structures, brokers often produce better deals for the borrower than
"direct" lenders.
Depending on how long you intend to live in your home, the rate you
are willing and able to make payments on, as well as a variety of
other factors that you may choose to consider will influence your
decision about which Loan Product is best for you. Just be sure that
once you have chosen a loan product that you carefully compare Apples
to Apples. Comparing rates from a Conforming 5/1 against a Jumbo 3/1
(a common mistake) is bound to be a disappointing, time-wasting Apples
to Oranges comparison. The danger is that may frustrate you and cause
you to lose sight of what could perhaps be a good deal.
To make the process easier, let an HomeYeah Mortgage Consultant
explain to you the different loan products and which are most
beneficial to your specific needs.
Comparing Lock Periods
The art of rate locking takes some reason, skill and practice to do
right. People tend to get funny around the concept of 'Locking.' Some
are greedy, and some are pessimistic. Try not to let your emotions run
away with you when deciding when would be a good time to Lock a rate,
once your application is submitted. If the rate and payment is fair
and affordable and the timing is right, almost any time is a good time
to lock.
Just remember that a quote or posted rate without a Lock Period is as
much a bogus quote as a published rate without the ability to Lock at
time of application. So as always, read the fine, small print when
reviewing advertised rates. This is always a good idea of course, but
even more critical when you are shopping lenders' websites.
There are often disclosures at the bottom of the rate tables. Read
them very carefully. If there is nothing that specifically states
something like: 'The rates shown can be locked for 30-days upon
application,' then the rates can probably only be locked for 10-15
days. In that case a 30-day lock could cost as much as an additional
1/4 Point (0.250%, or a quarter of 1.000% of the loan amount). Sixty
(60)-day locks can cost upward of an additional 1/4 Point.
It is not very cost-effective to get involved with a lender that will
draw you in with a 15-day Lock Period rate, and then tell you, once
you are involved in the process, that a 30-day Lock Period will cost
you in Points. Be sure to ascertain that there is no additional cost
for a 30-day Lock Period.
Comparing Written Estimates
You will find that when shopping on the web that people are willing to
write almost anything on their webpages. Perhaps they think it is not
perfectly legally binding to make a web-based offer they don't intend
to uphold. Perhaps they are careless. But when you obtain a piece of
paper that can be easily shown to others, that is when they tend to be
a little more serious.
'Good Faith Estimate' or 'GFE': this document is required by the
government law called RESPA as a disclosure of fees that a borrower is
likely to pay at closing. Though it is required at the time of
application, it is considered good practice for a lender to be willing
and able to provide a GFE before even proceeding to the application
process. So insist that you receive a GFE before you complete your
application. When any lender is reluctant to immediately provide a
GFE, move on to the next lender. Their name and license are at risk if
they are not being reasonably honest. A tactic that has come up in
recent times is to either spread-out or bundle fees written on the
GFE. Keep Apples to Apples: make sure the fee names mean the same
thing when comparing one written rate against another.
Insist on a written Fee Guarantee. You cannot compare Apples to Apples
unless you have something written because speech is too vague, and
contains too many possible hidden clauses.
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