When you’re shopping for your mortgage, it might be intimidating to figure out which lender you should work with.
How do you decide which is the best offer?
As a lender myself, I know that many of my clients compare options and lenders because when you’re buying a home, you want to know you’re working with someone who will be a part of your team and support you along the way.
One of the things that helps in this regard is that all lenders are required to use the same form when we’re disclosing the loan as far as the rate, the terms, all of that.
The standard form that all lenders need to use is called a Loan Estimate.
A majority of the fees that you’ll pay when you’re buying or refinancing a home are going to be third party fees. Attorneys, insurance, taxes - costs that aren’t lender-specific.
In this article, I’ll be highlighting what to look out for when reading a loan estimate so you can effectively compare different offers and choose the one that’s best for you.
And on the first page of that loan estimate, there will be a couple of important points.
Is your interest rate locked?
What is the interest rate?
What is the estimated payment, including mortgage insurance?
How much is the mortgage insurance, if applicable?
What is the total cash to close (located on the bottom of that first page)? This will include how much is due on the day of closing and how much the actual closing costs amounts to.
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Beyond the mortgage insurance, which can vary lender to lender if you’re getting a conventional loan, you’re going to want to pay attention to two main sections of the loan estimate, as it relates to the lender.
First, let’s consider Section A. This is where you’ll find information including origination charges, underwriting fees, processing fees, commitment fees, and also discount points (which can lower your interest rate and are lender-specific).
Section B is going to deal with services you cannot shop for.
This will includes the appraisal, if you’re paying for your credit report, the flood certification that the lender has to pull, and some other fees.
Everything else you see on the loan estimate - like Sections C, D, E, etc. - will show third party fees including the attorney you work with, the title company you choose, etc. These fees will be the same across loan estimates, regardless of the lender that you choose.
Your property taxes are going to be what they’re going to be.
Your homeowner’s insurance is going to be based on the company you choose.
And the amounts you need to set aside for your escrow account, for your reserves for taxes and insurance, will roughly be the same lender to lender.
The only other factor you’ll want to pay attention to when you’re evaluating your lender options is whether or not you are getting a lender credit.
Most of the time, a lender credit is generated by a slightly higher interest rate and that is also going to be listed out.
The other thing to keep in mind is if the rates are going to differ, lender to lender, usually a lower interest rate will also mean higher closing costs. And a higher interest rate will have lower closing costs.
So your best option is to evaluate both the rate and the fees or to ask the lender to quote based on the same rate. That way, you can evaluate using an even playing field.
My main goal is for you to confidently be able to make the right choice for your mortgage, understand what you’re paying, and feel empowered to ask the right questions. That way, you’ll have clarity on what that looks like moving forward.
If you have any additional questions about starting your mortgage process, you can contact me by emailing (rebecca.richardson@wyndhamcapital.com) or finding me on instagram (@the.mortgage.mentor).