When shopping for a new television for your family room, you typically will browse several options to find the best quality and the best deal out there. So, why wouldn’t you do that for your mortgage? Purchasing a home is one of the biggest financial decisions you can make, and it is important make sure you shop around and to get a second opinion. When comparing offers from lenders, make sure you are paying close attention to these four things: interest rate, lender fees, lender credit and mortgage insurance. Everything else involved is simply noise and it won’t vary.
The idea is to get the best rate and the lowest costs, right? Well, you should still consider the number of years you think you will be in the home. On average, borrowers stay in their house for 7 years and then decide to sell again. If you think you fall into this category, then yes, low costs upfront make more sense than if you plan to live in the home 30+ years. If you see yourself residing there long term, then it may be in your best interest to take the higher costs upfront to get the lowest rate possible that will ultimately keep you from racing up the interest rate payments in the future.
1. Interest Rate
Mortgage interest rates have a significant impact on the overall lifetime of the loan. If you are shopping around for a lender, you may see different advertised interest rates. Before you start shopping based on these numbers, consider the following: Most differences in mortgage rates will be minimal, usually one-eighth or one-quarter of a percentage point. This difference will not have a significant impact on your monthly payments. Although your rate and monthly payment is most certainly a large factor in which lender you choose, it is also important to focus on the level of service they can provide. You should look at how knowledgeable they are on new laws and regulations regarding home loans and ask about the speed of the process before making your final decision. Being delayed several months in closing may ultimately be more detrimental than paying a fraction of a point in rate.
2. Lender Fees
Lender fees are nearly as important as interest rates. They can directly impact your loan and can also be disguised as made-up fees such as:
- Underwriting Fees
- Commitment Fees
- Origination Fees
- Application Fees
- Discount Points
Let’s say Lender A offers you a rate of 4.25% with no lender fees and Lender B offers an interest rate of 3.99% with $6,000 in fees. Which would you choose? First, a quarter of percent will not make a huge impact throughout the lifetime of the loan, but the added fees (that go back to the lender) affect you immediately. At Loan Pronto, we have zero lender fees, and we also give you a lender credit that goes towards your closing costs.
3. Lender Credit
Lender fees can add up pretty quickly, and don’t forget, you still have other out-of-pocket expenses, such as the down payment, various mortgage fees, moving costs and possible renovations. At this point, you may be thinking that you overextended yourself and should start looking for a lower-priced house. Before jumping to that conclusion, it’s possible that you can get help with those expenses in the form of a lender credit. A lender credit is money from your mortgage lender to help cover the mortgage-related closing costs associated with the purchase of your house. Most of the time, Loan Pronto offered our borrowers a large chunk of money in credit to cover most (or all) of the those costs. That credit is then applied to your mortgage.
4. Mortgage Insurance
In general, the riskier you look on any factor, the higher your premiums will be. For example, the lower your credit score and the lower your down payment, the higher your premiums will be.Mortgage insurance allows you to purchase a home with less than 20% down. Common myth: all lenders have the same mortgage insurance across the board for the same scenario. Wrong. Not only can the numbers vary, but they can vary quite a bit. Not all lenders have the same MI, and not all MI is the same.Get My Free Rate Quote