10/23/2017 | Casey Fleming | Shopping for a mortgage can seem a little like going to an apothecary and asking for something to cure what ails you. The alchemist goes into the back room, mixes together a bunch of mystery ingredients, mutters something incomprehensible, and then, poof! Your cure is ready. You may feel this is what happens when you shop for a mortgage. But there’s help.
Follow these three simple steps when you shop for a mortgage and you’ll get the mortgage that is best for you and your family and that costs you the least amount of money.
First, figure out what type of mortgage would be best for you. If you are dead set on a 30-year mortgage, fine. But if you want to save money, at least explore an adjustable-rate mortgage, especially if you plan to own the home for only a few years. Consider a 15-year mortgage if you can comfortably afford the payments, as the interest savings are huge compared to a 30-year. Once you have decided on the right mortgage…
Choose a mortgage lender that is best for your specific needs and circumstances. Lenders all get their money from the same pool (well, pools, actually, but no one has a magic pool of money.) Rates and fees will definitely vary a little, but they should be reasonably close. To hop for a mortgage, do a little research on line, and then shop local banks, mortgage lenders and mortgage brokers. Each has their advantages, depending on your circumstances.
Great questions to consider when shopping lenders are:
- Was this lender recommended by someone I trust and whose opinion I value?
- Did the loan officer listen to my concerns and explain his recommendations? (Or did they just try to cram a certain product down my throat?)
- Is the agent licensed at both the state and federal level? (To confirm federal licensing, go to www.nmlsconsumeraccess.org)
- Did the agent provide you with at least three different options? (Loan type, price, interest rate, etc.)
Once you are confident in your product choice and have narrowed your choice of lenders down to three or four, then all you need to do is compare the total cost of the proposals. The trouble is, the APR is only relevant if you keep the loan for the full term and pay it off exactly on schedule. That rarely happens. A better way to compare is to look at the total cost of financing (meaning up-front costs plus interest over time) for the period of time that you expect to keep the loan.
The nitty-gritty when you shop for a mortgage
All you need to do is get a quote from the lenders you’ve chosen for the interest rate and loan costs they are offering you. Enter this data into the attached Excel tool and estimate how long you’ll keep the loan, and voila! You’ll know exactly how much each of the offers will cost you over that period of time, plus how much you’ll owe when you sell or refinance your home.
On the second sheet of the workbook you’ll find graphs comparing the cumulative costs of the loan options over 7 years and over 30, so you can see graphically how the options compare.
To recap, to shop for a mortgage:
- Determine which loan product is best for you
- Interview a number of lenders and narrow the field down to three or four
- Take their offers and compare the actual cost of each using the attached Excel analysis.
If you have any questions, post them in the comments below or send me an email at LoanGuide@Outlook.com.
This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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