Mortgages: The Big Picture
When a home buyer begins to consider a mortgage, generally the first point of reference that they will examine is the interest rate. Quite naturally this is as it should be, since rates will determine, to a large degree, the total cost of the mortgage. It makes sense, then, to make comparisons. In addition, though, there are a number of other factors which need to be considered, since they will affect the cost of the loan, the satisfaction with the lender or both:
1. What are the application fees?
2. How many points are with the loan?
3. What are the TOTAL closing costs?
4. How long has the lender or broker been in business?
5. How much experience does the lender have in the type of loan in which you are interested?
6. Does the lender have a wide variety of programs available?
By focusing only on the rate and downplaying the above factors, you run the risk of acquiring a mortgage that appears to be the best deal but may not be the most advantageous.
What are the application fees?
There can be a big variance here from lender to lender. Application fees can run the gamut from no charge to $100, $300, $500 or more. This application fee must be disclosed specifically as that or it could be disclosed as an additional “point” which is 1% of the mortgage loan amount.
How many points are with the loan?
“Points” are a form of upfront interest charged by most lenders. A point is equal to 1% of the total mortgage amount. For example, 1 point on a $250,000 mortgage would be $2500, 2 points $5000, etc. These points are paid in cash at the closing or settlement and become part of your total closing costs. Obviously, their cost can add up and have a big effect on your total mortgage cost. As in the above example, if 2 lenders are offering the same loan rate but one lender has 1 point and the other has 2 points, there is a $2500 difference in the total cost between the two lenders, before any other factors are considered.
What are the total closing costs?
Points (see above) are a big component of the total costs that are associated with closing, but there are a number of other factors that will vary from lender to lender. These charges can either be legitimate (title searches, title insurance, deed transfers, etc.) or exorbitent “junk fees” (ridiculously high courier fees, underwriting fees, processing fees, etc.). It is wise to get a clear picture from each prospective lender as to what the total closing costs will be to make a fair comparison.
How long in business?
The real estate “boom” of the early 21st century saw a huge growth in the mortgage industry with thousands of new mortgage companies and brokers spurting up. Some were staffed with employees with many years of experience and others employed those that were brand new in the mortgage business. Usually, the more experience that is on tap, the better the knowledge of mortgage procedures, laws and the like.
How much experience in your type of loan?
Although many lenders offer a wide spectrum of loans, others concentrate on specific programs such as FHA, VA, Conventional, low- or no-document loans, etc. Having a lender who specializes in the type of loan you are securing works in your favor, as long as you want and can qualify for that type of loan. Otherwise, you will probably want a lender who offers…
Wide varieties of loan programs
A lender who has a wide availability of loan programs can be a big advantage should you need to switch from one program to another (for example from a conventional loan to an FHA loan).
Although the interest rate should be the very first point of reference when searching for and comparing lenders, it should not be the end-all of your comparison process. Take some time to get a clear and TOTAL picture of competing lenders.