Comparing home mortgages can be complicated. But you don’t need a finance degree to make an informed decision. Here are some steps to help you get there.
Look for lenders to consider:
During your first conversation, you and the loan officer will usually ask each other questions, and the loan officer will use that information to assess your situation. That may sound cut and dried, but the meeting should be fluid based on what you’re ready to do. Scope out the lender’s communication strategy and their process for delivering on time. Ask questions like:
Thirty-eight percent of buyers think comparing multiple mortgage offers in a short time will hurt their credit rating, according to a 2020 LendingTree survey. But as long as the lenders all pull the borrower’s credit within a couple of weeks, it’s counted as a single credit inquiry. It is not problematic if they do it within a narrow window of time.
Compare the financial information located on the loan estimate form. You’ll want to drill down to origination charges in the lender section. Make sure you’re comparing apples to apples. If one lender is offering a 30-year fixed rate at 2.875% with no lender fees and another is offering 2. 75% with $1,500 in lender fees, those are unlike products. Get the fees at the same rate to find out who’s less expensive.
Comparison shopping can get complicated. Here are six ways to simplify the process.
1. Keep Your Pool Manageable
Mortgage shopping depends on the borrower and the personality type and how they’re work. The process can seem overwhelming. That’s why it makes sense to have a select few options to compare so borrowers can process and assimilate them.
2. Get a Fees Worksheet
The best way to compare effectively is to zero in on the fees worksheet, which the loan officer should provide. Then you can figure out just what the lender’s direct fees are, and you can make a nice, simple comparison.
3. Understand a Fees Worksheet Versus a Loan Estimate
Keep in mind that the numbers on the worksheet are estimates and not locked in. Interest rates are fluid and change daily. On the other hand, after you have a contract with a seller, the loan estimate and loan application are where the information is binding barring structural changes to the loan. Make sure the information reflects previous discussions with and disclosures by the loan officer.
4. Be Careful Interpreting Third-Party Fees
Third-party fee estimates are included on the worksheet. Two lenders could each come up with different estimates for title, escrow, or appraisal fees. But not all are negotiable. For instance, the seller chooses the title company, so the lender doesn’t control the choice or the fees. The lender could be choosing the high or low end of a range, but it’s only an estimate.
5. Think About Timing
Make sure lenders are using the same time frame for locking in pricing and that it will extend through the closing.
6. Always Apply for Loan Approval Before Finding a Property
But some lenders will allow borrowers to go through the formal underwriting process — not just preapproval — without having a property. The borrowers can get a bona fide mortgage commitment with all of the major buyer financials truly underwritten at that point. Then when borrowers make an offer, they can close more quickly.
You'll have to invest some time and effort into comparison shopping for a mortgage loan and selecting a lender and a loan officer. But your return on investment can pay off over the long haul.
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