LOVELAND – When buying a home, you may find it helpful to shop around for mortgages. With so many options and information to review, how will you know that you are making a valid comparison? Here are a few tips that may help.
Ask about the same loan program
Make sure you are comparing the same exact loan program with each lender. For example, it could be a conventional or FHA loan. It could be a 30 year fixed rate or a 7-1 adjustable rate loan. Since loan programs and terms can vary quite dramatically, inquiring about the same type of loan will ensure that you are making an apple-to-apples comparison.
Look Beyond the Interest Rate
As buyers, we tend to focus solely on the interest rate and go with the company that offers the best rate. However, there are other factors that impact rate and cost you money. For instance, one lender may offer a lower rate but require you to pay points (pre-paid interest). Although your rate would be lower for the life of the loan, that’s primarily because you’re paying some of that interest up-front. Be sure to ask for the same option (with or without points) from each lender. This will give you a better analysis.
Refer to the APR
Aside from points, some lenders offer a better interest rate in exchange for higher closing costs, and vice versa. So, how do you reconcile the figures? This is where APR (annual percentage rate) comes in. APR takes into account the costs of the loan. When a lender offers a quote, they will note the interest rate and the APR separately. So, you can compare APR from one lender’s program to another, and it would be a better comparison than reviewing just the interest rate alone.
Distinguish between fees and escrows
The Truth In Lending Disclosure (TRID) will list lender fees, pre-paid expenses, and escrows. Pre-paid expenses and escrows include your property taxes and homeowner’s insurance. Therefore, these shouldn’t matter which lender you use.
The only difference is, within the TRID, one lender may estimate needing three months’ worth of reserve whereas another may estimate four months. These are purely up-front “estimates”. The final figures are determined by the closing attorney after reviewing when your tax/insurance bills are due and how much is needed in escrow to pay those bills. So, you can disregard property tax and home insurance figures in your comparison.
Instead, focus on lender fees. Those are lender-specific. They include things like credit report, processing, underwriting, and flood certification fees. Also, compare whether a loan have private mortgage insurance (PMI) or not.
Selecting the right lender often involves a detailed analysis of loan estimates. As noted above, be sure to compare the same loan program to get a better picture of how one lender may differ from another. Always review up-front closing costs, interest rates, and APR. This will give you a view of the big picture. Only then can you make an educated decision on which lender provides the best option for you.
By Suzanne Plewes, RE/MAX Alliance in Loveland. Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail email@example.com.