The residential home mortgage business is competitive. There are several types of lenders that can offer loans. They range from your local credit unions, to the online virtual bank, the large national bank and the local (and sometime virtual) mortgage broker. Take a minute to understand the role of a mortgage broker. Compare a mortgage broker with a credit union. The credit union that offers rates the credit union sets, a mortgage broker will arrange or broker a transaction between you and a lender. Brokers shop many different lenders to find the best one for you and will offer a range of product selections. They are not obligated to get the best deal for the borrowers. Always contact several banks and brokers to compare rates.
To compare the best rate you need to:
Decide on a Mortgage Product: There are fixed rate loans, variable rate loan, loan that payoff in 15 years, those that pay off in 30 years, and some that look like they pay off in 30 years but are due in 5 years (balloons loans). In order to compare apples to apples make sure that the rates quoted are for the same type of mortgage closing at the same time for the same loan amount.
Get A Rate Quote: Make sure you verify the type of loan (variable or fixed), the term of the loan and the length of time the quote is good for. For instance a quote on a 15 year fixed rate loan that must close in 60 days is a good place to start.
Get a Point Quote: Points are fees paid to the lender or broker for the loan. 1 point is 1% of the loan amount. A discount point is considered prepaid interest. A point that is called an brokers fee or origination fee is the fee used to compensation the lender for their services. He points are often combined in a quote. Verify what makes up the point quote.
Get a Fee Quote: A home mortgage loan involves many people and many fees. Examples of fees are: underwriting fees, appraisal fees, credit report fees, broker fees, title insurance fees, document recording fees and others. A lender is required to give you a list of fees during the loan process but can give you an estimate of the fees when you call for a quote.
Get the APR: Putting all the quotes from several lenders side by side will give you a good idea of who has the best rate. In order to make this simply the by compare APR’s. The annual percentage rate (APR) is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay. It is the great equalizer as long as you have all the information.
Here is an example:
Quote 1: 5.125% + 0 points, $0 fees, APR 5.125%, 30 day lock
Quote 2: 5.125% + 0 points, $997 fees, APR 5.179%, 30 day lock
A good rule to live by when getting mortgage quotes: if it looks too good to be true it probably isn’t true. Call, compare, and ask questions.