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Once upon a time, getting a home loan was as simple as walking down to the local bank, sitting down with the manager, shaking hands, and presto! You’ve got a home loan and your local bank was your home lender. That’s pretty much the way it used to be.
Today, with the advent and popularity of online lending, times have really changed. Borrowers are now spoiled with so much info and so many choices! Right now (and how many times have you heard it over and over again in recent years) mortgage and refinancing rates are at really low numbers. With so many different lenders beating a path to your door and giving customers so much different information, how do you know when you’ve chosen a great deal from a great home lender? Well, wonder no more!
Do It Now?
Is the middle of a global health crisis the right time to do anything other than take care of your health? Well, the answer is always put your health first, but then comes your money and that means now is a great time to think about mortgages and refi’s. While you have the time, so do the lenders and they are chomping at the bit to help you right now!
The first thing to keep in mind is that because access to the competition has become so easy and the competition to get you to sign so fierce, the cost to buy a home is going to be very similar across the board at all the different lenders.
If one home lender really costs half as much as everyone else (as some companies would have you believe), they would drive all the competition out of the market. So rule number one is that despite differences that you may see on your up-front loan estimate, all major lenders will end up within a couple hundred dollars of each other at the closing table. But those couple hundred dollars differences often mean the difference between getting a loan done quickly and painlessly by a knowledgeable loan advisor versus an exhausting process with a less-equipped lender. That’s a biggie and should be considered.
Quality Really Matters!
Look, you might just think that your bank is the place to do any refi or new mortgage and certainly there is nothing wrong in thinking that is a great place to start.
But when looking for a home lender, quality matters! Make sure you are doing all your research. Look at reliable online reviews. With rare exception, purchasing a home or refinancing an existing mortgage is the largest money transaction you will ever make. That’s why you must ensure that the company you are talking to is going to do what they say, the right way, and in a timely fashion.
LendingTree is America’s largest online lending marketplace. It connects borrowers with multiple lenders so they can find the best deals and allows borrowers to shop and compare competitive rates and terms across an array of financial products. It’s a great platform for researching different lenders and getting the inside track on how their clients felt about working with them. To get started, check out the dozens of reviews there for the many mortgage lenders.
So You’ve Done Your Homework…Now What?
So now you’ve done your homework and you found two different offers sitting in front of you from two very reputable home lenders. They both sound pretty good, but one has a lower interest rate. Problem solved, right? Wrong! Interest rates can vary day-to-day, and change depending on your loan structure. So that’s why when comparing loans, there are four major factors you must keep in mind.
1. What did each company put in writing?
A Loan Estimate is just that—an estimate of your new loan—and different lenders will take more liberties than others when building your estimate. Think back on the last time you had several companies bid for a home project. It’s likely you had some companies give you bids that were clearly too low to be realistic. Unfortunately, shopping for a mortgage can be a similar process, so you need to keep your wits about you.
In any estimate, there is always some wiggle room built in so that when the signature comes, it is pretty common that some previously “unknown” charges, fees, or rate can show up. Until the final “good faith” documents are signed and executed, sometimes the numbers change and that might just be the time or day of the week you are discussing it! Online reviews should give you some indication of lenders that are in the habit of playing games like this.
2. How Much Are the Closing Costs?
Buying a home takes some money. You’re going to pay your first year of homeowner’s insurance. You’ll have the title work to pay for. The county that you live in is going to charge to record your new deed. A very common tactic in the industry is to bury these costs or to not even bring them up until you’re already committed! The best defense is to arm yourself with as much knowledge up front, so you know what to look for on a Loan Estimate before you are fully committed.
3. Who Is Going to Treat You the Best?
A home purchase can be a very complicated process. Your lender needs to be able to communicate, not just with you, but with your realtor, the seller, their realtor, and the title company. Then that lender needs to be able to keep you in the loop all the way to the finish line.
Communication is the biggest key to getting your loan closed on time and with as few headaches as possible. If you had to wait a week to get a pre-approval letter, what is the communication going to look like when you’re already committed to a lender and they’re no longer trying to earn your business?
4. Finally, What Is the Payment?
Both companies have given you written offers, all the costs are accounted for, and both have done a great job keeping you informed, but one offer is a hundred dollars less per month! Make sure that you’re comparing apples to apples.
A common difference is “escrow”. If one payment includes your taxes and insurance but the other doesn’t, or is using different estimated amounts, make sure you’re accounting for that difference.
However, the most common difference is going to be the term or duration of your loan. The term is by far the most powerful factor in determining what you will pay over the life of your loan. No matter what the interest rate is, making twice as many payments is going to cost more.
If you have a payment in front of you that seems much lower than the competition, it may be that you will be paying it for a longer time than the competing offer. 30-year mortgages are wayyyyyy cheaper per month than 15-year mortgages, but of course you will wind up paying multi-thousands more to the lender during the life of the loan, so know what you are talking about in fine detail in every way.
In the end, whether you choose a bank or a mortgage broker it really doesn’t matter. That is because at some point after you close, your loan will likely end up in the hands of a bank. Almost always, mortgage brokers sell your loan to a bank and it really doesn’t matter which one in the end. What matters is how it was handled, processed, signed, sealed, and delivered to you at closing.
I have closed on four homes and refinanced mortgages myself several times and in the end, where I wound up was perfectly fine. But paying close attention to the four questions listed above and doing a little bit of research up front, makes you as sure as you can be that you are going to put yourself and your family in the best possible financial position for years to come. Happy borrowing will be your final outcome!
Are you considering a new or refinanced mortgage? Now is a great time to do it and it can save you money that you can really use now more than ever. Isn’t it worth doing some research to find out how much you can save?