What to Look for When Comparing Mortgage Loans
Mortgage loans can be obtained from a variety of sources, from seller-provided financing, to credit unions and mortgage bankers, to brokers and "hard money" lenders. Check with several sources and compare fees, interest rates and terms to nail down the best deal on your home loan.
Compare Mortgage Lenders and Brokers
The difference between brokers and lenders is that a broker typically works with a variety of wholesale lenders. It's important to know that a broker isn't your agent and does not represent you but acts more as a salesperson. Brokers earn their living by charging a fee to originate the loan or by receiving compensation from the wholesale lender. This compensation is called a yield spread premium (YSP). A mortgage banker provides the financing directly and makes money either by selling the loan or servicing it.
Compare Mortgage Interest Rates
The interest rate on a mortgage loan is disclosed on a form called a Truth-in-Lending (TIL) disclosure. The Annual Percentage Rate (APR) is the cost of the loan (the interest plus the fees) expressed as an interest rate. Typically, the APR is higher than the stated interest rate. Compare APRs between identical loans; a comparison between loans with different terms won't be valid. Keep in mind that interest rates move with financial markets and can change several times a day. Until a lender commits to you in writing your rate can "float" or change any time.
Lenders should give you an estimate of their charges, called a Good Faith estimate (GFE) which may include loan origination, application, underwriting, settlement, and appraisal fees. According to the Washington Post, these fees can often range from 3% to 5% of a mortgage. But in a bid to stay competitive, some banks are even offering no- or low-fee loans to attract customers. The rates for these will be higher but may make sense for cash strapped borrowers.
Shopping around for a mortgage shouldn't be rushed. Just as there are different types of lenders, such as credit unions, thrifts, and commercial banks, there are different types of loan products. Get your disclosures quickly but make your decision carefully.
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