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How To Find The Best Mortgage Rates #CHEAT SHEET

Step-By-Step Guide To Find The Best Mortgage Rates

We scoured the internet in search of the best articles on how to find the best mortgage rates and found some plenty of valuable tips and tricks from various sources. We decided it would be a good idea to combine all of this information together for you to make it easily accessible. Plus, we sat down with our co-founder who spent twelve years as a mortgage loan originator. He took us behind the steel curtain to explain how things really work on the other end of the table. Needless to say this isn’t your standard checklist buddy! Store this article in a safe location along with your passport and save it for that special occasion. We are giving you everything you need to find the best mortgage rates on your home purchase loan.

WARNING- Do not go mortgage shopping without this checklist!

DOWNLOAD CHEAT SHEET

 

TABLE of CONTENTS
1. 4 Types of Mortgage Lenders
2. How To Find These Mortgage Lenders
3. Select 2 – 3 to Compare
4. Credit-Pull (Is it OK?)
5. Pre-Qualification or Pre-Approval?
6. Fixed vs. ARM
7. Pick Top Programs
8. Closing Costs #Cheat Sheet
9. Mortgage Rates #Cheat Sheet
10. APR #Cheat Sheet
General Questions
Summary

 

1. Different Types of Mortgage Companies

There are four main categories of mortgage companies.

  1. Banks
  2. Credit Unions
  3. Mortgage Lenders
  4. Mortgage Brokers

How Are They Different?
It might be easier to explain how they are the same first…
For starters, they all provide you with a means to finance your home purchase, so that is a good thing! They also all have to put you through the same ‘underwriting process’ in order to close your loan.

Some companies move quicker than others when it comes to underwriting, approving and closing your loan, but the requirements and checklist are generally going to be very similar. There are always some gray areas in the lending world and companies will all occasionally take a different underwriting stance on it. Some companies will have different minimum FICO scores for certain loan programs, and certain loan programs may not be offered at every company.

Licensing
Licensing requirements for the loan officer can vary based on the type of company. Some require the loan originator to personally complete state and national licensing requirements. For others, the mortgage company carries the responsibility of completing state and national licensing requirements.

Take Away
Deciding if working with a licensed loan originator is important or not is a personal preference. If so, make this one of the first questions you ask when you contact them.

QUESTION #1 (Optional) – Are you a licensed Mortgage Loan Originator?

Loan Servicing-
Loan Servicing pertains to who will be sending you the bill each month. This service is an actual business in an of itself.  Companies specialize in managing millions of home loan payments each and every month! It is a very common practice for mortgage loan servicing rights to be transferred after you close on your home loan. If you sign up for automatic online payments, you may not really care who manages since you’re not writing out a check each month. However, if this is an important topic for you, make this the next question on you ask.

QUESTION #2: “Do you sell your loan servicing to a third party?”
(If Yes)
FOLLOW UP: “What percentage of loans get serviced by someone other than you?”
FOLLOW UP: “What are the names of the most commonly used loan servicing companies you sell to?”

*It is a very common practice for all mortgage companies to a clause in the closing paperwork that gives them the ‘right’ to sell the servicing to a third party. This is true even with larger banks such as Wells Fargo, Bank of America and Chase. Although they do end up servicing a very high percentage of their loans, they have the ability to sell the servicing rights should they wish to do so.

Compensation-
Mortgage loan originator compensation can vary greatly between each type of company. Most originators work on some sort of commission structure, not a salary. The commission is based on a percentage of the loan amount you borrow. If you are working with a Loan Originator at a Bank, Credit Union or Direct Mortgage Lender their commission is not disclosed on any loan estimates you will see. Their commission is predetermined by their employer and cannot be negotiated by you.

On the other hand, a Mortgage Brokers compensation must be disclosed to you. Dodd-Frank regulations require that they disclose how much their commission is upfront. Brokers have the option of either charging you OR the lender. They can no longer charge you AND the lender.

Takeaway 
You can make strong arguments for both sides when it comes to commission rates. A higher commission can equate to working with someone with more experience and a higher level of commitment to closing your loan. A lower commission structure can equate to a streamlined process and lower overall costs to you
. Of course these are general statements and every scenario is going to be a little different. 

(Does not apply for Banks, Credit Unions, Mortgage Lenders)
QUESTION #3: (Only for Mortgage Brokers)”How will you be compensated?”
FOLLOW UP: “How much will your commission be?”

 

2. How To Find Mortgage Companies

Here are a few tried and true methods to find mortgage company’s to contact.
– Real Estate Agent Referrals
Google Maps
Zillow Mortgage – Reviews
Facebook – Friends and Family

Mortgage rates are not the only factor involved. Closing costs, customer service, availability, turn times and other factors also need to be taken into consideration.

3. Select 2 – 3 Lenders

Select somewhere between two to three different lenders to call. You will have a good idea on current mortgage rates and available loan programs after speaking with them. 

USE CHEAT SHEET: Enter Each Lenders Name Column A 

Mortgage Rates cheat sheet
“Hometown Mortgage” is listed as Lender 1. Compare up to three lenders on this sheet.

 

4. Credit-Pull (Is it OK?)

Some lenders may require a credit-pull in order to provide you current mortgage rates and/or a complete loan estimate. This will depend on the company and loan originator that you speak with. If you are serious about purchasing a home, don’t let this requirement scare you. Consumer protection laws allow you the right to shop around for your mortgage.

Dan Green with The Mortgage Reports explains this topic well in a recent blog post:

“The FICO scoring system does more than just allow this type of credit pull by lenders — it actually encourages it. The system is built with consumer protection in mind.
Here’s what you need to know. First, when you apply for a mortgage loan with multiple lenders, the credit bureaus count it as a single credit inquiry. This makes sense when we compare it to a shopping spree for credit cards, for example. When you make 4 credit card applications, you’ll potentially have the option to use all four, which can increase your level of indebtedness. However, when you make four mortgage applications, you’re not applying for four mortgages. You’re only applying for one. Because of this point, consumers are granted — by the credit bureaus — the right to shop for a mortgage with an unlimited number of lenders without fears of “multiple credit dings”.
All mortgage rate shopping done within a 14-day period will count as a single credit pull, with the bureaus acknowledging the first credit check then ignoring all subsequent ones.
If you’ve only shopped for a single mortgage rate quote, it’s best to get competing quotes. The bureaus will protect your FICO, and you may find yourself with access to lower rates and fees.”

It is always best to shop for just one item at a time and to do so within a 14 day time frame. Your credit rating can be negatively impacted if you shop for multiple items simultaneously. This means that you shouldn’t shop for a car, a credit card and a mortgage all at the same time!

QUESTION #4: “Do you need to pull my credit in order to provide current mortgage rates and closing cost estimates?”

 

5. Pre-Qualification or Pre-Approval?

It is strongly advised that you get Pre-Qualified before you start looking at homes. This is the only way to find out if you are eligible for a home loan. This will also help you understand you budget and purchasing power. (In a previous post, we discuss the current pitfalls of this process.)

The Pre-Qualification process involves a through review of your credit report. It also involves a review of your income and assets over the previous two to three years. You will need to provide a copy of your W-2’s, Tax Returns, Pay Statements, Bank Statements and other personal financials. The Loan Originator will review the documentation and issue a Pre-Qualification letter accordingly. The pre-Qualification assists your realtor in gauging your purchasing power and provides assurance to the seller that you are a solid buyer.

[Read why this is a flawed system here: You’re Shopping for a Home the Wrong Way]

How is a Pre-Approval Different?

The main difference between these two is the number of people that review your documentation. For a Pre-Approval, the Loan Processor and Underwriter review your information in addition to the Loan Originator. This helps to catch something that the Loan Originator may have overlooked. Mistakes can and do occasionally happen. 

Which one is better?
It’s never a bad idea to get Pre-Approved upfront, especially if you have concerns on your eligibility. In some markets, the seller may require a Pre-Approval letter before accepting your offer. In other markets, a Pre-Qualification letter may be sufficient.

QUESTION #5: (For your Realtor) “Do I need a Pre-Approval letter or will a Pre-Qualification letter be OK?”

6. Fixed vs. ARM

Before comparing mortgage rates, you have decide whether or not you would like to consider looking at any Adjustable-Rate-Mortgage (ARM) loan programs.

Fixed – The interest rate remains the same for the entire life of the loan.

ARM – The interest rate is fixed for a specific number of years, and can then adjust each year thereafter.

Example:
3yr ARM – Fixed interest rate for the first three years. On year four, the interest rate will adjust according to its margin and rate index. The interest rate can adjust up or down based on how the rate index is performing on the fourth year. There are ‘caps’ on how much the interest rate can adjust each year and over the life of the loan.

ARM’s are commonly available on 3,5,7 and 10yr Fixed periods. For example, a 10yr ARM is fixed for the first ten years of the loan, and will adjust on the eleventh year. These loan programs are amortized over a 30yr period.

There is no right or wrong answer here. Think about your situation and look at the numbers before making a final decision. You can save a lot of money on an ARM in a five year period. But it’s not for every situation and not for everyone. 

QUESTION #6: (For Yourself)
How long do I plan on staying in this house?”
“Am I going to make substantial improvements to the home in the next few years?
 “Would I be comfortable with? (Am I going to be able to sleep at night?!)”

7. Pick Top Programs

You want to narrow in on two to three different loan programs that will fit within your budget. When you speak with the loan originator, ask them the following:

QUESTION #7:
“What loan programs do you offer for someone with a credit score of _______ and total available cash for closing of _____?”
“Do you offer any loan programs that have any income and/or geographic restrictions?”
(If yes, inquire further about the guidelines and how to determine your eligibility.)

Tips:
*Military families should inquire about a VA home loan.

*First-Time Home Buyers should inquire about local down payment assistance programs.
(Anyone who has not owned a home in the previous 36 months qualifies as a First-Time Home Buyer.)

The loan originator will be able to tell you:

a) which loan programs fit within this budget
b) how much money you will need to “put down” on each scenario

USE CHEAT SHEET HERE:
Write down the names of the top two to three loan programs in Column B AND the corresponding Down Payment percentage in Column C.

Mortgage Rates cheat sheet

 

You’re doing great! Now it’s time to ask each lender for their mortgage rates and closing costs. Incase you haven’t done it yet, we strongly suggest you download the ULTIMATE Mortgage Shopper Cheat Sheet before Step 8. This tool can literally save you THOUSANDS of dollars and it’s 100% FREE!

DOWNLOAD CHEAT SHEET

 

8. Closing Costs

Key Point: In order to accurately compare different lenders, you must ask specific questions. Stay focused! 

In most loan scenarios, the bulk of your closing costs do not come from the lender. Expenses such as state transfer taxes, title insurance, mortgage recording, attorney and/or settlement fees can outweigh lender fees by quite a bit. These non-lender based fees are going to be the same (or very close) no matter which lender you choose. While you certainly want and need to know how much all of these other expenses are, you also want to be able to separate them from those coming from the lender. This will allow you to shop smarter.

Common Mistakes:
Comparing Title Insurance costs.
Comparing Pre-Paid costs.
Comparing Cash for Closing.

As mentioned above, title insurance costs do not come from the lender. Pre-paids include an estimated homeowners insurance premium and property taxes due at closing. These expenses are separate from your lender and will end up being the same no matter who you end up using.

Since each lender uses their own unique estimate worksheet, reviewing estimates from multiple lenders can be very confusing. It’s easy to get confused if you don’t know what to look for.

QUESTION #8: ASK THESE SPECIFIC QUESTIONS ON COSTS:.
“How much is your upfront application fee?”
“How much are your Lender Fees?”
“How much is your Appraisal Fee?”
“How much is your Origination Fee?”
(This is a percentage.)
“Any Other lender costs you charge?”
“What is the cost to lock-in the interest rate?”

Write the answers in Columns D thru H on your CHEAT SHEET.

Comparing Closing costs
The costs from the first Lender are shown above.

 

Now it’s time to ask them for their the mortgage rates!

9. Mortgage Rates

Mortgage rates go hand-in-hand with the closing costs charged by the lender. Typically, lower closing costs equate to a higher interest rate and a lower interest rate equates to higher closing costs.

QUESTION #9: “What is your current interest rate on a 45 day rate lock with No Discount Points for this program?”
*Interest rates can change daily. This will give you an idea for where their mortgage rates currently are.
*Interest rates are “locked-in” for a specific number of days. Common options are 25, 30, 45 60, 75 or 90 days. The longer the “lock-in” period, the higher the interest rate is. There can be penalties involved if your interest rate expires.

Comparing mortgage rates on cheat sheet
The interest rates on each loan program from the first Lender are shown above.

10. APR

APR stands for Annual Percentage Rate. This rate is not what your monthly payment is calculated on. This percentage rate represents the total costs of borrowing the mortgage over the life of the loan. In short, it is a good way to find out how much the closing costs are on the loan. The greater the difference between the interest rate and the APR, the higher the closing costs are, and visa versa.

QUESTION #10: “What is the Annual Percentage Rate (APR) on this loan scenario?”
*If they are providing you with quick quotes over the phone, don’t be alarmed if they don’t have the APR available at the tip of their tongue. A proper APR calculation would require a complete loan estimate that factors in all APR related closing costs.

Comparing the APR using the cheat sheet
The APR’s on each loan program from the first Lender are shown above.

General Questions

“Do you require a fully executed contract (signed by all parties) in order to “lock-in” the interest rate?”
*This answer will often be Yes. The reason for this is that your interest rate must be locked-in thru your estimated Closing date listed on your contract. Closings can get delayed for a number of reasons, so it’s wise to lock your rate in beyond the estimated target closing date incase of any unexpected delays.

“How long are your processing and underwriting turn times?”

“What can potentially delay the approval process and closing of my loan?”

“Who will be my point of contact be throughout this process?”

“Can you provide me with a detailed checklist for the documentation you need to approve my loan?”

Did You Know There Is A New Way To Search?

Now you can search for a home a mortgage at the same time. Find out the true cost of each home upfront!

SEE HOW IT WORKS

 

Summary

As with any financial product, there are a lot of different variables to consider. Please note that this checklist serves as a general outline only. The primary objective of this article is inform you on how to better shop and compare different mortgage rates and closing costs between multiple lenders.  We hope that you find this information helpful!

Please leave your questions and feedback in the comments section below!

CanIBuyIt
CanIBuyIt is dedicated to informing homebuyers on their financing budgets.

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