It really doesn't matter whether it's a mortgage broker, mortgage banker or
bank. Like buying anything else, you need to be educated about the product
and willing to shop around. The following tips will help you evaluate what
will probably be a confusing array of choices.
To start with, ask yourself the following question:
How long do I expect to keep this mortgage? Will I sell the property or
pay off the loan within 7 years?
If yes, take a serious look at an
adjustable rate mortgage (ARM)
If your needs are long term and you feel that interest rates are going to be
higher in the future then the fixed rate mortgage is probably best for you. Of course if you
really want a lower rate for the first few years (and possibly many years) then an ARM would be your
choice.
Choosing a lender, choosing a loan officer
You may be the type of person that just goes on-line, finds the lowest rate and
starts typing all of your personal information into your web browser.
Maybe I'm old fashioned but I prefer the personal contact. When you find a
few lenders that look interesting start making your initial phone calls.
Here are some things to ask right up front:
Will you prepare an estimate of closing costs with ALL of the
fees prior to my applying for a loan?
After you receive my loan package, is it sent to another office for processing,
underwriting?
Who makes the final decision on my loan?
As to the loan officer, be prepared to be asked a lot of
questions. If the loan officer simply gives you the rate without asking
about the use of the property (primary residence or investment or second home),
whether it is a purchase or refinance, the length of time the rate needs to be
locked etc, etc, then you probably should look somewhere else. In order to
provide you with accurate information, the loan officer must first gather a lot
of information from you.
Rates versus Fees
There are a confusing array of fees associated with mortgage
loans. The lender fees are the ones to be especially concerned with.
Closing agent/title company fees can usually be shopped independently but the
lender fees are determined by the lender. Like the interest that they
charge, the lender fees create income for the lender, therefore, they must be
considered together. Generally speaking, if you are looking for a smaller
loan you will want a loan with low fixed fees. Typical fees include:
Application fee
Funding and review fee
Payment
Processing fee
Underwriting fee
Document preparation fee
Warehouse fee
Administrative fee
Should you avoid lenders with high fees? Not
necessarily, the lender with the highest fees might also be the lender with the
lowest rate. Also, sometimes you can eliminate some fees just by asking
(if they do then perhaps the fee was not legitimate in the first place).
If they will not eliminate the fees for free, most lenders will be happy to take off
the fees in return for a higher rate. Ask the lender to quote a rate with
no junk fees and compare the payments over the expected life of the loan.
Rule of thumb is 1/4% higher rate pays for 1% of loan amount in fees. The
longer you plan to keep the loan, the more important lower rate becomes.
Of course the ideal lender offers low rates with low fees.
