Do insurance providers all have the same program and rates? Of course not! What about medical providers? Nope, nope, nope! Home mortgage Lenders don’t either. If you’re in the market to purchase a new home, you’re probably also looking to get a home loan. Don’t be fooled, every lender’s programs are different, and we encourage you to shop around to find the rates and programs that are best for you.
Before you make any financial comparisons, make sure you are comparing apples to apples. That means that the terms of the loans you’re comparing need to be the same. Pay close attention to the type of loan (conventional, FHA, VA, etc.), the length of the loan (in months), and make sure the estimated monthly payment includes the same amount for insurance and property taxes. You should also compare the maximum LTV (loan to value) percentage, mortgage insurance payments (if required), cash reserve requirements, and if there are any prepayment penalties. Also, make sure you’re comparing fixed rates and not an adjustable-rate (ARM) from one lender with a fixed rate from another.
There are two types of mortgage points, discount points, and origination points. Regardless of the kind of points, each point is usually equal to 1% of the total amount mortgaged. For example, on a $400,000 home loan, one point is equal to $4,000.
Origination points are used to pay your loan officers for all of their hard work. Discount points are basically prepaid interest. The purchase of each discount point typically decreases the interest rate on your mortgage by about 0.25%. Most home lenders offer the opportunity to purchase between one to three discount points.
Closing costs include your points and fees. Fees cover the lender’s costs to process your loan. They have to pay for things like a copy of your credit report, an appraisal, title insurance, recording, and more. These things are required to get a loan. For example, a lender requires an appraisal to get the estimated fair market value of the house you are buying (or refinancing). The appraisal is an essential factor in determining how much of a mortgage you can qualify for. A title search and title insurance are necessary to make sure you’re buying a house from the legal owner, and to ensure there are no liens or other claims filed against the home.
There are many factors to consider when comparing lenders and their programs, rates, and fees. One final important factor is the reputation of the lender and the quality of their customer service. Is it worth saving a little money if it creates a lot of stress and hassle? If you would like a rate comparison or would like to start the process of qualifying for a home loan, we assure you only the greatest customer service and competitive rates.
Note: Opinions expressed are solely my own and do not express the views of my employer