Its not all about your interest rate.

It’s not all about the interest rate.

Traditionally when somebody is in the market for a mortgage they either go to their bank or ask a friend who they used or hopefully they ask for a recommendation from their Real Estate Agent.  We know what mortgage companies are good at and for which they are not as well versed.  Who can think outside the box as needed.  After you get your preapproval letter with a general idea of what the interest rate you are ready to go house shopping.  With preapproval in hand you are in the position to put an offer on a home and hopefully get it accepted.  At this point is where most people go wrong. 

THIS is when you shop for a loan, once you have a contract in hand.  Your documents should already be rounded up to submit to a few lenders to make sure you are getting the best deal on a loan.  Again it isn’t all about the interest rate.  This is when you need to be asking for a LOAN ESTIMATE. 

1. Ask each lender you are working with for a LOAN ESTIMATE.   There are 6 data points in which a lender needs to get you an estimate and traditionally the last data point is the property address. 
2. Make sure you ask for the estimate from all lenders to be at the same interest rate. Regardless of what they “say” they can get you.  This will allow you to compare apples to apples.
3. Make sure each lender has given you an estimate for the same loan program, FHA, VA, Conventional USDA etc.
4. All loan estimates are standardized forms. When you get your estimate, there are two places you need to look at to compare loan COSTS; BOX A and is this a locked rate?  The totals in Box A will show you what the lender charges you.  Everything else depends on the property or is a pass through.   The totals in box A Can Not change. 
5. Although that is the only place you need to look to compare loan COSTS, you also need to take into consideration the business model of each establishment. Some lending institutions are the big box store of lending with very little guidance, 8-5 work schedule unavailable on the weekends, and definitely look nowhere outside the “box”.  I cannot stress enough how important it is to get your Real Estate Agent involved in this process. The headaches of the big box lenders are not worth the few hundred you may save, and your agent may be able to help you avoid that.   

Now that you have your lender of choice in place you can start looking at some variables you may have some control over in which may slide that interest rate up or down.  Up isn’t always bad. 

1. Rate Lock Term – Direct correlation to your closing date.  Shorter the term, lower the rate.
2. Number of years – 15- and 20-year loan rates are lower than 30 year terms
3. Down Payment or Loan to Value LTV– run a few scenarios, sometimes less is more. For example, everybody wants to get to that magical 20% equity to get rid of PMI.  Some lenders prefer to have mortgage insurance on the note.  SO put down 19% and pay the PMI for the short period or send a huge equity payment with your first payment and you are at 20%, no PMI but you get the small break on your interest rate for the duration of the loan. 
4. To demystify points.  They are 1/8 of a percent of the mortgage.  Your lender can generate what is called a RATE STACK with the click of the mouse.  This rate stack will show you how much it will cost you to buy your rate down…..or even up.  Down isn’t always the best option.   But that is for you and your lender to discuss. 

Thanks for reading.  If you need any help with Real Estate or just have a question don’t hesitate to contact me.  I don’t have all the answers, but I know the people who do.