Three Simple Rules for Mortgage Shopping
There are two kinds of people that you don’t want to be: the one who leaves the closing table with the nagging feeling that you’ve just paid too much for your loan; or the ignorant person who leaves the closing table having no idea that you’ve just overpaid. With the help of the web and by following three simple rules, you can make sure that you can secure the best price on your mortgage.
Rule #1 Compare the Same Day
If you take one thing away from this page, it should be this: you must compare mortgage quotes from different lenders on the same day. Otherwise you won’t be comparing apples-to-apples.
A mortgage rate is a commodity—like a bushel of wheat or barrel of oil. And just as the price of oil fluctuates everyday, mortgage rates and their associated costs fluctuate daily—sometimes twice or three times a day.
For example, a rate of 5% that comes with closing costs of $2,500 on a Monday could easily cost $3,200 on Tuesday. So, if you get a quote from, say, Wells Fargo on Monday, and then get a quote from Bank of America on Tuesday, you might mistakenly think that Wells Fargo had the better price, which may not necessarily be the case. You just compared to apples to oranges. Wells Fargo might just look better because they were fortunate enough to quote when the price for rates was lower. The only way to know which lender offers the better deal is to compare both of them on the same day. Otherwise, you are comparing apples to oranges.
Unfortunately, comparing mortgage quotes on the same day isn’t always possible. Most lenders don’t publish their rates and fees on the web like Box Home Loans. And most lenders seem to take their sweet time to deliver a quote, relying on loan officers who seem to have better things to do than deliver a quick quote. Consequently, mortgage quotes from different lenders tend to trickle in on different days.
So, how do you compare mortgage quotes when they trickle in on different days? Box Home Loans makes this very simple. Use Box as the standard by which you compare all quotes. Because our quote is online—updated daily—each time you receive a written quote from another lender, you can simply go to our Today’s Rates page that same moment to compare the two quotes. You can repeat that step over and over no matter what day the other quotes finally arrive.
Rule #2 Compare the Same Rate
Here’s a bit of insider information: every lender can offer the same rate. Yes, no one–including Box Home Loans–has a corner on the market for low rates. The difference between lenders lies purely in the closing costs. The only way to truly compare apples to apples is to compare closing costs between different lenders who offer the same rate.
Box Home Loans makes it terribly easy to compare the same rate. We display our rates in a user-friendly matrix, where you can see up to nine different interest rate and closing costs combinations per loan program. No matter what rate the competition quotes, you can find that same rate on our matrix and quickly compare our closing costs with theirs.
Rule #3 Compare the Right Fees
Read carefully. This is where most shoppers get taken. There are three types of fees in a mortgage quote–lender fees, third-party fees, and prepaid/escrow items–and only some of these should affect your comparison. We will summarize each and tell you how you should compare them.
Lender fees consist of two things: points/origination fees and “junk” fees.You must take both into consideration. I repeat: you must add them together. Some lenders brag about charging “no points” only to charge you an “admin” fee of $1,995. Or others might advertise, “no junk fees” only to charge you twice the points of another lender. You also must know the following about the two different kinds of lender fees:
Points and/or Origination Fees
There are subtle differences to points and origination fees, but for the sake of comparison, they should be viewed as the same thing. The most important thing to know about points and origination fees is that their amounts go up or down as the interest rate goes up and down. Generally speaking, the lower your rate, the more you pay in points or origination fees. The higher the rate, the less you pay in points.
Lender “Junk” Fees
Underwriting Fees, Admin Fees, Tax Service Fees, Flood Certification Fees, Pay-For-My-Trip-To-Hawaii Fees, yada yada yada. The list goes on and on. It is somewhat amusing to see what kind of fees lenders make up. Basically, these are any fees not charged by the third parties below. And if a broker tries to pass off his partnering lender’s underwriting fee as a third-party expense, don’t believe it. Essentially, all fees not charged by the appraiser, credit agency, title company, or attorney, are all considered lender fees.
Third-party fees don’t matter as much to your comparison because those fees are essentially the same no matter where you get your loan. In fact, it is illegal for a mortgage company to pad these third-party fees. These costs include the appraisal, credit report, title company fees, and government fees (recording, transfer taxes, tax stamps, etc). Third-party fees do vary somewhat from provider to provider. Not all title companies charge the exact same fees, for example. But the differences are minimal and typically not subject to change. Therefore, don’t waste too much time haggling over these. Haggle over the stuff that matters—lender fees!
Prepaid/escrows items should have ZERO bearing on your comparison between two lenders. They represent the amount collected either to pre-pay (or escrow) your taxes, insurance, and interest. The amount a lender can collect for these items is highly regulated by the federal government, and does not fluctuate significantly from lender to lender. Yes, it is critical to understand the amount required for these items, but worry about this after you have chosen your lender.
To compare one lender with another, simply add up the points, origination fees, and lender “junk” fees for each lender.
What separates Box Home Loans from the rest is our lack of fees. It is stunning, actually. The only fees you will see from us are the points or lender credit associated with your rate and a processing fee of $199 for conventional loans and $249 for FHA loans.
Finally, whether you choose Box Home Loans for your next mortgage, these three comparison rules—Same Day, Same Rate, Right Fees—will prove invaluable as you shop for your next mortgage. Never again will you have to ask yourself, “Did I just pay too much?”