Whether you are shopping for a new car or new furniture, the drill is normally the same. You read up on the company’s reviews, check with friends, and look for the best deal. Who wants to buy a car that is instantly going to rack up repair bills? However, when deciding on a mortgage loan, borrowers typically do not think about comparison shopping.
In a recent Bankrate survey, 12% of millennials said they thought their mortgage rates were too high. In some cases, buyers may believe that when their mortgage rate is low, they will not need to shop around for the best offer. However, according to Bankrate, the Consumer Financial Protection Bureau, and the Federal Trade Commission, even just a few basis points can make a difference of thousands of dollars over the life of a loan.
Comparing home mortgages can feel complicated but, you do not need a degree in financing in order to make an informed decision. Michele Harmon Team has a few steps to help you get there!
Find a Few Lenders
While you are looking for lenders to consider, loan officers recommend you consider the following sources:
- Locals you know and trust: “Make sure the lenders you are comparing come from referrals from local people you know who have worked with them – like your friends or relatives,” advises Jeff Koch, Vice President of Residential Lending at Draper & Kramer Mortgage Crop, in Schaumburg. “Wherever you have trust established would be a good source.”
- Your Real Estate Agent: Michele Harmon Team works with lenders on a daily basis. Click here to connect with one of our trusted lenders.
- Online Reviews: Online reviews can be a great starting point. If you notice a lot of really great reviews, several people have had an experience outstanding enough for them to take the time to provide them.
Have an Introductory Mortgage Loan Meeting
Schedule a meet and greet with a loan officer! During this time, you and the loan officer will ask each other questions and the loan officer will use this information to assess your qualifications. This may sound cut and dry, but the meeting should be fluid based on what you are ready to do.
Typically, a loan officer will schedule a meeting focused on comparison shopping separately unless the borrower is well versed in the process and is looking to get moving quickly. However, lots of people will want to go over their own questions and cover key topics first.
Interview the Mortgage Loan Officer
Whichever you may choose, the introductory meeting is the best time to interview the loan officer. You will want to work with someone who will be there with you and who can problem solve. Throughout a Real Estate transaction, there can be a lot of unanticipated problems. Discover the lender’s communication strategy and their process for delivering on time. Not all lenders have mastered the closing process. If your loan is not delivered on time, your closing date will be compromised.
To avoid problems, consider asking these questions:
Fact Finding about the Process
- Will you take me through the process?
- What should I expect?
- What will I need to supply?
Compatibility with the Loan Officer or Mortgage Banker or Broker
- What is your communication style? Are you willing to communicate virtually?
- When would I work with you? Are you available in the evening? On the weekends?
- Will I be working with you or a member of your team?
- What do you think of my time frame to get to closing?
- What issues, if any, do you foresee being a problem?
Track Record of Loan Officer and Lender
- How long do loans you process typically take to close?
- What are some ways you could expedite the process if there is a tight time frame?
- What is the approximate percentage of loans you work on that close on time?
- How many loans have you worked on that have not closed or have not met deadlines?
- What is the biggest problem you have had with a loan and how did you fix it?
Use the Meeting to Learn
It is helpful to use the meeting to clarify general information you have picked up online and talk about your concerns. For example, if you have switched careers or industries in the last year or if you started having bonus or commission-based income. You may think that you can just divide your salary by 12 to establish your monthly income, but it may not be that simple.
You will also want to bring up the impact on your credit score. According to a 2020 LendingTree survey, 38% of buyers think comparing multiple mortgage offers in a short time will hurt their credit rating. As long as all the potential lenders pull your credit within the same couple of weeks, it is counted as a single credit inquiry.
Get and Compare Financial Information
Whether you are looking at a federal form called a loan estimate or a precursor form called the “fees worksheet”, you will see a breakdown of closing costs. “To compare the lender financials, you’ll want to drill down to origination charges in the lender section. Make sure you’re comparing apples to apples. If one lender is offering a 30-year fixed rate at 2.875% with no lender fees and another is offering 2.75% with $1,500 in lender fees, those are unlike products. Get the fees at the same rate to find out who is less expensive,” Koch said.
Tips to get Mortgage Loan Information
Comparison shopping can get complicated. Here are six ways to simplify the process:
- Keep your Pool Manageable: Mortgage shopping depends on you, your personality type, and how you are wired. The process can seem overwhelming. Therefore, it makes sense for you to have a select few options to compare so you can process and assimilate them.
- Get a Fees Worksheet: The best way to compare effectively is to zero in on the fees worksheet provided by the loan officer. This will allow you to establish exactly what the lender’s direct fees are so you can make a nice, simple comparison.
- Understand the Difference Between a Fees Worksheet and a Loan Estimate: Keep in mind that the numbers on the worksheet are estimates. They are not locked in. Interest rates are fluid and can change daily. “The loan estimate and loan application are where the information is binding bearing structural changes to the loan,” Koch said. Make sure the information reflects previous discussions and disclosures with the loan officer.
- Be Careful When Interpreting Third-Party Fees: Third-Party fee estimates are included on the worksheet. Two lenders could each come up with different estimates for title, escrow, or appraisal fees. Not all are negotiable. For example, if the seller chooses the title company, the lender does not control the choice or the fees. The lender may choose the high or low end of a range, but it is only an estimate.
- Consider Timing: Make sure lenders are using the same time frame for locking in pricing and that it will extend through the closing date. A lender may offer a rate that is locked in for three weeks. If you expect your closing date to be five or six weeks out, that will be a problem.
- Consider Applying for Loan Approval Prior to Finding a Property: It is rare for lenders to do this but, some will allow you to go through the formal underwriting process, (further in the process than only a pre approval), without having a property. You can get a bona fide mortgage commitment with all of the major buyer financials truly underwritten at this point. Then, when you make an offer, you can close more quickly and having gone through underwriting makes you a stronger buyer in the eyes of a seller.
You may want to invest some time and effort into comparison shopping for a mortgage loan and selecting a lender and a loan officer. Doing so may allow your return on investment to pay off over the long haul. If you are looking to buy or sell a home, Michele Harmon Team is here to help you through the process. Give us a call at 713-818-1330 to get started today!
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