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How to Shop for a Mortgage and not get taken…

Shopping for a mortgage can be one of the most frustrating experiences in one’s life, but it doesn’t have to be. If you find yourself confused by the whole process you are not alone. The process seems to be designed to be confusing.

Difficulties of finding the best rate

The shopping process initially seems simple, just compare rates and pick the lowest one. After a few phone calls with evasive loan officers one can begin to realize that it is almost impossible to compare one lender to another. It can almost seem that lenders are trying to make comparisons difficult in hope of having you get exasperated and just choose them. One wonders: Where can I get straight answers and how can I possibly make sense of it all? Do not worry! Shopping for a loan is easy if you know how to shop. This article is designed to teach you the right questions to ask and give you the tools to compare one loan to another quickly. Read the article, follow the instructions, use the spreadsheet provided, and soon you will see how easy getting the best deal can be!

Understand what you are looking for

The first step to getting the best price is choosing the mortgage program that is best for you. The best price on a loan that does not fit your specific needs may cost you much more than getting a fair deal on the proper mortgage. Browse through the LOAN PROGRAMS to help you decide which loan to choose. Only after you choose the type of loan you’re looking for can you go to the next step and shop for the best rate.

Comparing Apples to Apples

One of the difficulties of shopping for a mortgage is that lenders all seem to have their own way of expressing costs. The key to shopping for a mortgage is to limit the variables. First, always compare lender’s rates from the same day. Rates change daily and perhaps more than once a day.

For example:

Lender “A” may always have the lowest rate, and you call them on Monday and their rate is 5%. You call lender “B” on Tuesday and their rate is 4.875%. You may assume that lender “B” has the better rate, and you would be wrong. Because if you called lender “A” on Tuesday you would have found that their rate was 4.75%.

BE CAREFUL!- Some lenders offer very short lock-in periods (15 to 30 days) in order to be rate competitive. Remember, if your loan does not get closed in that time period, you lose the rate.

Always ask the length of the lock for the rate you are quoted.

Best Rate or Best Deal?

A common mistake shoppers make is to ask: “What’s your best rate?” It is a logical question to ask, but does not elicit the responses most borrowers need to make a proper decision. Borrowers must understand both rates and fees. Rates are only half the answer of getting the best deal. It is possible to end up with the lowest rate but not necessarily the best deal..

For example:

For a $100,000 30 year fixed loan Lender A has a rate of 5% with a $400 origination charge, and 1 discount point making their adjusted origination charge, (lenders fees), $1,400. Lender B has a rate of 4.625% with an $800 origination charge, and 3 discount points making their adjusted origination charge, (lender fees), $3,800. Which has the better rate? Lender B has a lower rate, but the loan costs $2400 more at closing. The real question is which is the better deal?

Hint:

The question you are trying to answer is: At the rate I am shopping for which lender is going to charge me the least amount of money. Understanding Fees

Understanding Fees

Fees should be broken down into two categories

Your Adjusted Origination Charges:

This is the total of Origination Charge and Discount Points, and/or Lender Credit. Convert these into dollars to better understand associated costs.

For Example: 1 discount point = 1% of the value of the loan. One discount point equates to $1000 on a $100,000 loan.

The best way to compare lenders for a given loan program is interest rate, adjusted origination charges, and the number of lock days. All other settlement expenses are third party charges, and are not controlled by the lender.

Your Charges For All Other Settlement Services:

Appraisal, Credit Report, and Flood Certificate

Title Services and Lender’s Title Insurance: Includes title search, closing fee, and survey.

Owner’s Title Insurance: You may purchase a policy to protect your interest in the property.

Government Recording Charges: State and local fees to record your mortgage and title documents.

Transfer Taxes: State and local fees on mortgages and home sales.

Initial Deposit For Your Escrow Account: To pay future and recurring charges on your property for taxes and homeowner’s insurance.

Daily Interest Charges: From the day of your settlement until the first day of the next month.

Homeowner’s Insurance: To protect the property from a loss, such as a fire.

Step by Step process to get the “Best Deal”

  1. Pick the program that best suits your needs
  2. Choose the rate you want first. By choosing the rate first you eliminate one of the variables. You can now find out exactly which lender is charging you the least amount of money for the loan that you want.
  3. Construct a shopping Spreadsheet like the one provided below. Costs based on 30 Year Fixed $100,000 Loan with an 5% Rate.
LENDER Origination Charge Discount Points Lender Credit Adjusted Origination Charge
AAA Mortgage $695 0 0 $695
World Bank $995 1 = $1,000 0 $1995
ABC Mortgage $1200 0 0 $1200
Friendly Brokers $1,295 0 $300 $995
P.U. Credit Union $500 2 = $2,000 0 $2,500

By breaking down the costs using a spreadsheet like the one above it is easy to find who has the best deal. In the example above the lender with the lowest costs is AAA Mortgage.

Ask the lender for a Good Faith Estimate of Settlement charges to verify if they are willing to put their pricing claim in writing.

Shop for a Title company Settlement agent- These companies are responsible for your closing, title insurance and other closing costs. Their costs vary much the same as mortgage lenders. Be sure to get the deal that is best for you. Ask your Federated Lending Loan Officer about how you can save money by combining title services with your loan.

Now you are ready to Shop. Good Luck!

We have included a blank spreadsheet to assist you in your search.

*Origination Charge + Discount Points, (or minus Lender Credit) = Adjusted Origination Charge = Lender Fees

Print the spreadsheet below.

LENDER Program Rate Origination Charge Discount Points Lender Credit Adjusted Origination Charge
Federated Lending Corporation
 
 
 
 
 
 

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