This blog is courtesy of our friends at Noble Home Loans
As we very well know, many home buyers find mortgages to be intimidating and uncomfortable. After all, when they shop for a mortgage, they compare numbers they’re not used to looking at. And when they apply, they submit their most private information to strangers, who will judge their fitness for home ownership.
Yikes. It’s no wonder they’re worried before they even begin…
Because of this we need to take extra care to let them know not to let fear push them into accepting the first offer that comes along, or cause them to take a more expensive home loan simply because it’s advertised as being fast or easy. If done correctly any mortgage can be fast and easy — and cheaper.
So to help our clients from the outset, I’ve listed below the steps future home buyers can take to safeguard themselves from paying more than they should. Please pass along as needed.
Step 1: Know Themselves
When negotiating for a mortgage, it helps to know the credit score, how much they can put down, and what kind of property they want. Lenders need this information to provide an accurate quote.
They should get a free credit report and purchase inexpensive FICO scores at www.annualcreditreport.com, the government-authorized site, as other sites may sell their
information or try to get them to purchase credit monitoring services.
Clients will need to determine how much money they have for a down payment. The size of the down payment dictates the cost of mortgage insurance (if applicable) and other fees.
They should indicate what sort of property they want. For instance, condos and manufactured homes can cost more to finance than traditional single-family houses. And rentals and vacation properties carry higher rates than primary residences.
Once they have this information, they should provide it to EVERY lender they contact. And they shouldn’t authorize another credit report until they know who they want to work with.
Step 2: Have them gather loan quotes as quickly as possible
The next step is contacting a few competing mortgage lenders and providing them with the information listed above to get mortgage quotes. Ideally, they’ll get this information on a Loan Estimate form, which binds the lender to some extent. Alternatively, they may be given a worksheet or scenario. That may be okay as long as the lender honors it.
Shopping for a mortgage: How many quotes do they need?
The important thing for clients is to request quotes so that they come in as close to simultaneously as possible. That’s because mortgages are financial vehicles and investors buy them like they do stocks and bonds — they can change all day long like stock prices. So clients can’t really compare a Monday afternoon quote to a Wednesday morning quote.
To make things easier, they should ask each lender for a quote with a given price, for example let’s say a 1 percent origination charge and no additional loan fees… or a given rate, say 4.5 percent. Then, they only have one figure to compare among them, either the rate for a given price, or the price they pay for a specified rate.
Step 3: Go through offers carefully
The client’s next step is to gather the quotes and determine which lender has the best offer for you. The Loan Estimate form shows the fees charged, the program selected, and the interest rate.
It really doesn’t matter what they call the charges, clients should just go to the bottom line.They’ll also want to see what is included in third-party charges like appraisals and title insurance. Your client can’t shop for their appraiser, but in many states they can shop for title insurance and escrow services, and prices can vary a lot.
Step 4: Choosing the lender
Once they’ve narrowed it down, clients should take a couple of the best offers and contact the lenders. The goal here is to determine who they want to deal with. This is the stage in which “fast” and “easy” become important. All clients should ask themselves the following:
First, fastest, or easiest can also be very expensive
Mortgage interest rates can vary wildly, from .375 to .625 percent. That translates to 1 to 2.5 percent in extra fees, or $2,000 to $5,000 on a $200,000 mortgage. Most of us would consider spending an extra 15 to 30 minutes to save $2,000 to $5,000 a good investment.
One more benefit to shopping: empowerment
In addition to saving money, shopping for a home loan provides a couple more benefits. Clients can be sure that they’re not being discriminated against or taken advantage of when several lenders are competing for business. And they learn a little about mortgages, which should increase confidence and set them up for successful homeownership.