How to Shop for a Mortgage

The rate is very important when shopping for a mortgage.  But, you should also consider the fees that are associated with the loan. Did you know that two different lenders can have the same rate, but different fees? This could end up costing you more. So, be sure to compare the fees that make up the loan such as the loan origination, credit report, loan application and title services fees to name just a few.

 

Once you’ve chosen a lender with good rates and fees, locking in your rate is key. Mortgage rates can change daily. So, to protect a good rate, you should lock it in while you’re in the process of house-hunting. Otherwise, the rate at the time of application is not guaranteed to be the rate on the mortgage. Some institutions, like Dollar Bank, offer customers the ability to re-lock their rate if rates go down, but now you’re protected if rates do go up.

The best time to get pre-qualified for a mortgage is before you meet with a realtor. Getting pre-qualified is important because then you’ll know approximately how much home you can afford and what your estimated costs will be. Also, most realtors won’t even begin showing you homes until you’ve been pre-qualified.
 
In the current market with a lack of inventory, some real estate agents prefer a pre-approval over a pre-qualification, as pre-approval includes a verification process through your lender to determine exactly how much you are qualified to borrow. Contact our mortgage experts to learn more about pre-approval and how it differs from pre-qualification. 


 

An annual percentage rate (APR) is a calculated rate that is different from the mortgage interest rate. The APR is intended to be used to compare loans from different lenders. The APR represents fees and certain loan costs, including points and interest, as a cumulative rate that is disclosed to borrowers. The Federal Truth in Lending Act requires mortgage companies to disclose the APR when they advertise an interest rate to help borrowers compare the true costs of the loan.

The APR is important to pay attention to so you can compare the costs between lenders. The higher the APR, the more you’ll pay in costs.

A point is an upfront fee, where each point is equal to one percentage of the mortgage amount. Paying points is a way to reduce or “buy down” a mortgage interest rate. If you borrowed $100,000, one point would cost $1,000. And that will typically buy down your interest rate a quarter of a percent. For example, if your interest rate is 4.00% and you pay one point, you get a rate of 3.75%.

Deciding whether or not to pay points to lower your rate depends on if you have the cash available to pay for the points upfront and the length of time you plan to stay in the home. If you have the cash available and if you continue ownership of the house beyond the breakeven point, you can recoup your upfront payment for points and begin enjoying lower payments for the remainder of the mortgage. If you sell the house before your breakeven point, you may lose money.

When comparing fees between lenders, you’ll want to compare the APRs. The higher the APR, the higher the fees associated with the mortgage. You’ll also want to obtain a loan estimate to get a true sense of all of the fees.

 

Within three days after you’ve submitted your mortgage application, you will receive an itemized estimate of the charges you’re likely to incur at the settlement or closing of the loan. This is called a loan estimate. The fees listed are estimates, the actual charges may be more or less.  At closing, you will receive a closing disclosure which will show the actual costs for items paid at settlement.

It is important to compare fees when shopping for a mortgage. Lenders typically charge fees for services such as underwriting, processing and document preparation. They may also have charges relating to the origination, application and funding of the loan and tax services to list a few. Lender’s fees vary and can have a substantial impact on the overall cost of obtaining your loan.

Whether you should finance your home with a fixed rate or adjustable rate mortgage (ARM) could depend on how long you plan to stay in the home.

If you’re planning to stay more than five years, you may want to choose a fixed rate mortgage. You’ll have the security of a fixed rate and payment throughout your term. You’ll also build equity faster by refinancing into a lower interest rate and a shorter term, like a 15- or 20-year fixed rate, without a big jump in your monthly payment and you can choose a mortgage with or without closing costs.

If you’re planning on staying in the home for less than five years, an ARM could be the way to go. You can save thousands in interest by refinancing into a lower interest rate and with no closing costs. If you’re in the market for a jumbo loan, our ARMs have the same interest rates for higher loan amounts up to $750,000.

The shorter your mortgage term, the faster your equity will build as you pay back more of the principal.  A 10, 15, 20 or 25-year term will build equity and save on interest expense when compared to a 30-year term. With a 30-year term, your monthly payment will be less.