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Cut Costs Shopping Around for a Mortgage

Think you’re a savvy mortgage shopper? You might not be. A study by the Consumer Financial Protection Bureau found that only about half of home buyers shopped around for a mortgage, meaning the other half considered only one lender or broker.

That’s great—if you’re a lender. But you’re a borrower, which means you want the best rates and loan terms in your area. And if you don’t loan shop, you’re very likely to make these expensive mistakes.

You might get a bad lender

If the only lender you work with is offering loans with lots of teaser rates, you might be in for a rough ride.

For example, let’s say your lender provides you with two options: a 30-year fixed-rate mortgage and a 30-year adjustable-rate mortgage. The fixed-rate mortgage is fairly standard, with a decent rate through the life of the loan.

But the lender is very persuasive with the ARM deal it has going, with only a 3% interest rate for five years. After that, it adjusts to the market and includes the lender’s margin.

Five years after you sign the loan, rates climb to 6%. Additionally, the lender’s healthy 3% margin kicks in, leaving you with a fully indexed rate of 9%. That’s a lot more than the 3% payments you were making for the previous five years.

If your lender did a bad job explaining the details of your loan (or a good job hiding them), you could be in serious trouble. But if you found a good lender halfway across town, that 20-minute car ride would have been worth it.

You can’t compare rates and terms

Within three days of applying for a loan, your lender has to give you a good-faith estimate, or GFE. This handy tool has tons of information about why your loan costs as much as it does. Fees for origination, title insurance, mortgage broker, application, rate lock, and commitment are all itemized in the GFE.

These fees can vary—sometimes significantly—among lenders and loan types.

If you’re using only one lender, you might get one that requires $200 worth of commitment and application fees than another lender across town who doesn’t charge for commitment or application.

You’ll miss out on special deals

Lenders want your business. To get your attention, they sometimes roll out special deals. Perhaps you need a mortgage that folds in your closing costs for an FHA loan, but your lender doesn’t have that option. Don’t give in to defeat. Call various lenders or brokers (or both), and tell them what you’re looking for. Ask them to contact you when they’re able to offer such a deal.

You lose bargaining power

Having a GFE from another lender can give you a significant advantage when negotiating, as it gives you a frame of reference. It’s a way of showing your lender that you have options, know what mortgages in your area cost, and are willing to go to the other guy if the deal isn’t right. That can make the lender budge on a few items and net you a better deal. But if you’re working with just one lender, you might find yourself out of your element with no frame of reference.

Remember: It pays to shop around. Use at least two lenders, ask questions, and compare loan terms.

 

Craig Donofrio lives in New Orleans, where he writes about real estate and finance news. He enjoys books, football, Scotch, unusual video games, Southern architecture, and learning new random subjects.
http://www.realtor.com/advice/not-shopping-around-for-a-mortgage-can-cost-you-heres-how/

 

Posted by    |   April 9th, 2015   |   No responses

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