Loan
shopping can often get complicated because of all the different
loan products out there. One simple way to start is to compare
30 year fixed rates with different lenders. This should give
you a general idea about the competitiveness of any given lender.
However, some lenders may have better adjustable rate programs
and not be as competitive in fixed rates. In addition, banks
change their lending policies frequently and so may be good
one year and less so the next. In addition, things can vary
quite a bit by how strong a borrower you are. If you credit
is less than good you may not be eligible for the best rates.
Rates can also vary with the amount of the loan.
You
can work with a mortgage broker, a mortgage banker or directly
with a loan officer at a bank or savings and loan. Most internet
lenders are mortgage brokers. Mortgage brokers have the advantage
of being able to take your loan to many different banks or saving
and loans. They deal with the “wholesale” department
there and get the laons at a lower cost than you can by walking
in the front door to the “retail department”. If you
are dealing with a good ethical broker, they will charge you
approximately the difference between “wholesale” and
“retail”, so you should not pay any more than if you
wnet to the bank directly, maybe even less. On the other hand,
some banks have products only available through loans made directly
through the banks own loan officers. You can go crazy shopping
with dozens of lenders. If you find good ones, checking with
at least three for comparison shopping should be good enough.
When
you shop you need to call all the lenders the same day because
interest rates can change everyday. Ask the following questions:
1) What is today's rate for a 30 year fixed rate mortgage?
2) What is the rate with:
1
point?
2 points?
0 points?
A
point is a fee that equals 1% of the loan amount. It's also
known as a discount point because if you pay it up front the
interest rate is discounted to a lower rate. Not all lenders
offer the same amount of discount. Whether it is better to
pay points and have a lower rate or pay no points and have
a higher rate depends on how long you plan to have the loan.
You can calculate how long it takes to break even by dividing
the amount of money saved in the monthly payment by the amount
of the points and that tells you how many months it will take
to break even.
The
following is an example only to show how this works and does
not represent an actual loan:
A
30 year loan of $100,000 at 8% with no points has a monthly
payment of $733.77
if paying 1 point (1%) reduced the rate to 7.75% the payment
would be $716.41
Savings
per month: $733.77 - $716.41 = $17.35
1 point = $1,000
$1,000
/ 17.35 per month savings = 57.6 months to break even
In
this example, after about five years you would be ahead
paying points but in less than five years if you refinanced
or sold you would have been better paying no points.
You
do not need to decide on a loan at this point and you may
select an adjustable or a 15-year loan or some other loan.
Price shopping those is more complicated. When you get closer
to choosing a loan I would be glad to help you sort it out
with whichever lender you select.
3) What is the total of all other lender fees not including
title and escrow?
Title and escrow fees are charged by the title company separately
from the bank. Therefore those fees will be the same regardless
of which lender you select and it's better not to use the lender
estimate of those fees.
Lender fees include things like appraisal, credit, document
preparation, tax service and other fees. Different lenders sometimes
use different terms for these fees and they all have them more
or less. For comparison purposes the total is easiest to use.
With the above three figures you should be able to compare costs.
The other thing is to find out the maximum you can qualify for.
Finally, once you select a lender then have that one immediately
start the approval process so you can get a preapproval letter.
This should only take less than a week. This is very important
in a sellers market, so that if you are competing against other
buyers you will have an advantage.
