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Guide to Compare Mortgage Offers
Let us talk about how to choose a mortgage lender and how to compare mortgage offers.
And the best way is to go over loan estimates and break down all the numbers on the loan that you are applying for so you can choose the best way to compare mortgage offers.
Let us first look at different types of institutions where we could get home loans. A lot of times people approach their local banks for mortgage loans.
Then there are Credit unions through whom you can secure a loan, then there are mortgage brokers.
When you are looking at a mortgage broker, have someone who is local, so they have their own underwriter, loan processor and would have programs that are more flexible compared to credit unions or banks.
And mortgage brokers have more number of lenders but very efficient because they don’t get paid unless they find a way to give service to a borrower.
So when you shop around for a mortgage and wanting to compare mortgage offers what are you looking for?
One of the things is a good rate, what you want to do is get a loan estimate so you can compare mortgage offers.
The Loan Estimate will Show you
- The term like a 30-year loan then it will specify if it is a refinance or a purchase.
- If you are going for a fixed rate then be sure the estimate shows that it is a fixed rate, then
- It will show you the type of loan that you have and
- The loan amount, here again, make sure its a loan amount you have requested,
- The interest rate and
- What that mortgage payment would be principal and interest also
- Look out for taxes,
- Insurance also make sure if there is any prepayment penalty. Make sure there is no prepayment penalty. Make sure there is no balloon payment as well. So a complete payment would show as an estimated total monthly payment in your LE
In the Loan estimate, there would be a section called costs at closing which gives you 2 sections
- Estimated closing costs
- Estimated cash to close
This can be deceptive so you would require to check this out really carefully. The estimated cash to close means the estimated cash you would be needing at the time of closing.
On the 2nd page of your loan estimate you would be able to see your loan cost, In the origination charges you are going to see – point fees, discount fees, and things like that if it is applicable.
Then it would show services that you cannot shop for, which are very common costs, where you will see appraisal fees, credit report, flood certification, and tax service fees which is more or less similar with all the lender.
Then comes the services you can shop for where it covers the title fees and legal part so those fees might be comparable, but understand different programs and packages it might not be comparable.
Then under other costs, you will see recording fees and other taxes of the deal that you will sign, so it would be standard with all the lenders.
Similarly, the next part of prepaid would be standard as well. Where it would show the interest of the day of closing to the end of that month on a prorated basis.
The next part of initial escrow payment at closing is also standard with all the lenders it covers the homeowner’s insurance, the mortgage insurance, and property taxes.
Please be aware that only some programs have the Escrow payment some don’t.
Lastly, you would want to look at one big thing in your loan estimate which is the ‘Total closing costs’, which is like a rebate check from the lender to help you cover costs, so that is how you are getting the estimated cash to close.
This is the sum total of ‘Total closing costs’ minus the ‘lender credits’ which gives you the figure of ‘estimated cash to close’ from ‘costs at closing’.
The next page of your loan estimate will show you measurements to compare the loans.
The Annual Percentage Rates (APR) is a huge number to look at because this is your costs over the loan term expressed as rate and it is not your interest rate.
So let us quickly run through the checkpoints to compare mortgage offers, so what do you pay attention to when you are comparing
- Make sure the product is mentioned correctly eg. A fixed-rate if you are looking for a fixed rate
- The loan term is correct e.g. 30 years
- The interest rate is given to you
- No prepayment penalty or balloons payments
- The origination charges should be zero
- Check out the lender credit if they are not giving you one ask for it
- Your APR.
These are the biggest highlights of a loan estimate and this is how you compare mortgage offers from one lender to another. And when you compare them the possibility of the difference could be up to $5000 at times.
