How to Shop for a Mortgage
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Whether you buy new sheets or a new car, the exercise is generally the same. Check out the reviews, check out your friends, and search for the best deal. After all, who wants to buy a car that’s racking up repair bills right away? Yet when choosing a mortgage, borrowers don’t always think about comparison shopping.
In a Bank Rate Survey Among recent buyers, 12% of millennials said they thought their mortgage rates were too high. Some buyers may think that when mortgage rates are low, they don’t need to shop around for the best deal. But even a few basis points can make a difference of thousands of dollars over the life of a loan, according to Bankrate, the Consumer Financial Protection Bureauand the Federal Trade Commission.
You might think shopping for a mortgage is as much fun as preparing for a tax audit. It is true that comparing mortgages can become complicated. But you don’t need a degree in finance to make an informed decision. Here are some steps to get there.
Find a few lenders
When looking for lenders to consider, loan officers recommend consulting a few sources:
- Locals you know and trust: “Make sure the lenders you compare come from referrals from local people you know who have worked with them, like your friends or family,” advises Jeff Koch, vice president of residential lending at Draper & Kramer Mortgage Corp. in Schaumburg, Illinois. “Wherever you have established trust, that would be a good source.”
- Your real estate agent: “If you’re working with a real estate agent, ask if they have any comments or advice on a lender or loan officer,” recommends Jim DeMarco, branch manager and senior loan counselor at Flagstar Bank in Seattle.
- Online reviews: These can be a good starting point, DeMarco says. “If you see a lot of great reviews, that means people are taking the time to provide them.”
Have a mortgage introductory meeting
During a meet and greet, you and the loan officer will usually ask each other questions, and the loan officer will use this information to assess your qualifications. It may seem simple, but the meeting should flow smoothly based on what you’re ready to do.
Typically, the loan officer would separately schedule a meeting focused on comparison shopping. If that sounds painful for borrowers who want to (literally) move. No worries, says Koch. “The borrower may be knowledgeable and want to go straight to what’s most relevant to them, which is financial and comparison details. But many people need to review their own questions or address key topics first.
Do you want to meet virtually? “Some people are just more comfortable virtually, and that’s okay,” DeMarco says. “I’ve made loans with people I’ve never spoken to on the phone. Everything is done by SMS.
Interview the Mortgage Loan Officer
Whichever method you choose, this meeting is the perfect time to interview the loan officer. Borrowers need to find someone who will be there with them and who can solve the problems. “We call unforeseen problems ‘icebergs,'” DeMarco says. “You think the navigation is smooth. And then, suddenly, you hit an iceberg.
Learn about the lender’s communication strategy and on-time delivery process. “The process is very complex and you would think that professional lenders have it all figured out. It’s not,” Koch says. “When a loan isn’t granted on time, people’s finances and lives are essentially hanging on the head of a pin, which is the closing date.”
To avoid problems, ask questions like these:
- Could you walk me through the process?
- What should I expect?
- What should I provide?
Compatibility with Loan Officer or Banker or Mortgage Broker:
- What is your communication style? Are you ready to communicate virtually?
- When will I work with you? Are you available in the evening?
- Will I be working with you or a member of your team?
- What do you think of my deadline to reach closing?
- What if you foresee problems?
History of loan officer and lender:
- How long do the loans you process typically take to close?
- How would you speed up the process if the deadline is tight?
- About what percentage of loans are you working on near the time?
- How many loans have you worked on that didn’t close or didn’t meet deadlines?
- What’s the biggest problem you’ve had with a loan and how did you solve it?
Use the meeting to learn
You can also take advantage of the meeting to clarify general information you picked up online and talk about your concerns. DeMarco gives some examples. “You may have changed careers or industries in the past year or started earning bonuses or commissions. Your research may have shown that you can simply divide your salary by 12 to calculate your monthly income. But it may not be as simple as that.”
You will also want to raise concerns such as the impact on your credit score. Thirty-eight percent of buyers think comparing multiple mortgage offers in a short time will hurt their credit score, according to a 2020 LendingTree survey. this counts as one credit application. So it’s not a problem if they do it in a limited amount of time,” says Koch.
Obtain and compare financial information
Whether you’re looking at a federal form called a loan estimate or a precursor form called a fee spreadsheet, you’ll see a breakdown of closing costs, Koch says. “To compare financial data from lenders, you will need to dig deeper into origination fees in the lenders section. Be sure to compare apples to apples. If one lender offers a 30-year fixed rate at 2.875% with no lender fee and another offers 2.75% with $1,500 lender fee, these are different products. Get the fees at the same rate to find out which one is cheaper.
6 Tips for Obtaining Mortgage Information
Comparison shopping can get complicated. Here are six ways to make it simple:
1. Keep your pool manageable
Mortgage shopping “depends on the borrower and the personality type and how they’re wired,” Koch says. “The process can seem overwhelming. That’s why it makes sense to have a few select options to compare so that borrowers can process and assimilate them.
2. Get a fee spreadsheet
The best way to compare effectively is to focus on the fee spreadsheet the loan officer must provide. “You’ll be able to determine exactly what the lender’s direct charges are, and you’ll be able to make a nice and easy comparison.”
3. Understand a fee vs. loan estimate spreadsheet
The figures on the spreadsheet are estimates and are not blocked. Interest rates are fluid and change daily or even more often, DeMarco says. On the other hand, after entering into a contract with a seller, “the loan estimate and the loan application are where the information is binding, barring structural changes to the loan,” Koch explains. Make sure the information reflects previous discussions with the loan officer and disclosures by the loan officer.
4. Be careful when interpreting third-party charges
Third-party fee estimates are included in the spreadsheet. Two lenders could each offer different estimates for title, escrow or appraisal fees, Koch says. But not all are negotiable. For example, the seller chooses the title company, so the lender does not control the choice or the fees. The lender could choose the high or low of a range, but this is only an estimate.
5. Think about timing
Make sure lenders use the same time frame to lock in prices and that it will continue through closing, Koch notes. “A lender can offer a lock-in rate for three weeks, but if you anticipate or know your closing date will be in five or six weeks, that’s a problem.”
6. Consider applying for loan approval before finding a property
“A lot of lenders won’t,” Koch says. “But some will allow borrowers to go through the formal underwriting process – not just pre-approval – without having ownership. Borrowers can obtain a Good Faith Mortgage Commitment with all major financial buyers actually underwritten at that time. Then, when borrowers make an offer, they can close faster.
You will need to invest time and effort in researching a mortgage and selecting a lender and loan officer. But your return on investment can pay off in the long run.