There is a huge misconception among homebuyers that the best lender is the one who offers a product with the lowest interest rate. Here is why this may not be the case:
- The rates advertised may not apply to the loan you want.
- The true Annual Percentage Rate (APR) may be higher – a lot higher.
- Bait & Switch is still alive and well in the mortgage industry.
In fact, it’s better to shop by APR, because this figure reflects the annual percentage rate with points and fees included.
Keep it Local, at First
The best place to start when shopping for a mortgage lender is where you do your banking. Find out what kind of rates and products they offer, and use this to compare against other lenders. Contacting a mortgage broker may be a good next step. These mortgage professionals do the shopping for you, from a broad array of loan products with various lenders.
Evaluate the Lender’s Products
When you call or visit a lender, look into the following aspects of their loan products:
- Request the lender’s current interest rates and ask if these rates are the lowest for just that day or for the week and if the rates quoted are for adjustable or fixed mortgages.
- If you are interested in an adjustable rate mortgage, ask when the rates will increase, how the rate and payments will vary and whether or not payments will decrease with a reduction in rates.
- Request that the lender or mortgage broker express the points as a dollar amount. This will make it easier to determine exactly how much you’ll be paying for the quoted loan and easier to compare it to other offers.
- Fees are sometimes lumped together under one category. Ask the broker or lender to separate them so that you can compare the fees associated with this loan to other loans. Ask for clarification for any fee you don’t understand
Additional questions for the lender that don’t concern the actual loan product include:
- If you won’t be using an FHA, USDA or VA loan, find out how much the lender requires as a down payment.
- Is Private Mortgage Insurance (PMI) required and, if so, by how much will your monthly payment increase?
When the lender approves your application, you’ll be given a Good Faith Estimate (GFE) – a standardized form that itemizes the loan’s terms and fees. Because all lenders use the same form, it allows borrowers to more easily compare loans. The GFEs that you receive and the notes taken in the lender interviews will help you make an intelligent, informed decision.
Excerpted from the book “Home Buying Made Easy,” by Kris Lindahl. Copyright 2014