It might surprise you to know that the best mortgage loan might not be the one that has the lowest interest rate or APR. Lenders use a standard form called a Loan Estimate to quote a mortgage. There are five sections of your loan estimate to pay close attention to.
Interest Rate – Make sure you know if your rate is locked or not because rates can change daily.
Mortgage Insurance – If your loan has mortgage insurance, pay attention to the rate that is being quoted. FHA & USDA have a standard mortgage insurance rate.
Loan Costs – Box A- lender fees are typically fees such as underwriting, application, and processing. These are fees that the lender is charging for the operational costs of originating your loan. In addition, you may see discount points. Discount points are additional closing costs paid to lower your interest rate. It might not always make sense to pay discount points; this is a personal decision that I recommend you discuss with your loan officer so that you understand what it will cost, what you will save in the interest rate, and how long it will take you to recoup those funds.
Services You Cannot Shop For – Box B – This contains fees like the credit report, flood certification, the appraisal, and some additional scans that a lender might do on your loan that can vary from lender to lender, but because they are standard industry services, the costs will typically be the same.
Lender Credits – includes credits that a lender is giving you based on your interest rate and/or loan program.
Outside of these 5 areas, things like title fees, attorney fees, recording fees, homeowners insurance, and property taxes are typically the same regardless of the lender you choose. Make sure to compare the five areas listed above side by side to truly know what your loan will cost. Taking the time to truly compare apples to apples can save you thousands. When considering multiple quotes, make sure to get them on the same day so that your quotes are based on the same interest rates.
Lastly, the lender you choose may not be the cheapest. You need to consider not just what the mortgage will cost you, but who will see you through from start to finish. The mortgage process is complex, so it is important to choose a lender who has the level of professionalism, communication, and accountability that will see you through from contract to close.
I know the mortgage process can be overwhelming, that’s why I make it my mission to take the guesswork out. Follow me for more mortgage tips and strategies.