Shopping for that best interest rate. First off, you need to be careful when using the term best, because we always want the best of anything. Remember these two old sayings? "You get what you pay for" or "If it's to good to be true, that it might not be true."
Well, the same could be said when shopping for that mortgage interest rate. I read an article last week that disturbed me some, because I felt it left some important information out. It started out that you should deal with a mortgage broker instead. Here is his statement to as why you should do this.
"Try a Mortgage Broker
Sure they’ve taken a lot of flak lately, but if you work with a mortgage broker, you can have them shop your loan scenario with a number of banks and lenders to find the best rate...."
The first issue is that this article is written by a Mortgage Broker. And he doesn't go on to truly define the differences. You also have Banks and Mortgage Bankers. A bank would be like Wells Fargo or Bank of America, where they typically service the loan themselves and use their own rates. A Mortgage Banker can service their loans, but usually sell the loan after closing to an investor on the secondary market. This is exactly what a Mortgage Broker does. But through a broker, your loan is underwritten by another bank and sold to them at the closing table. The biggest difference is that the Mortgage Banker has full control over the loan and does everything in-house. The Mortgage Banker is also set up with 4 to 6 investors just like the Mortgage Broker, to where they can shop your rate around.
There are a few basics that you should be aware of when shopping for an interest rate.
Lock-in/Float procedures - Make sure your loan officer goes over the lock-in and floating policies before you end your conversation with them. If they don't do this, in my opinion, this is on purpose and a red flag. Why? The longer the lock period, the more expensive the rate or the cost for that rate. Most will just give you a 15 day or 30 day price when shopping.
Itemized fee worksheets - aka, the old good faith estimates. The new good faith estimates don't break down the lenders total costs. If you get some sort of fee sheet that breaks down all costs, you want to total up the lenders fees, plus points. Some lenders won't charge points, but high fees. If I only charge points and my total fees are the same, I am still cheaper. Because you get to write off a certain amount of those points. Please consult a CPA for this.
Shop Interest Rate and APR (annual percentage rate) - Be very careful. Using the APR is not always the best method, because some lenders leave out certain fees that don't have to be included. There are some other tricks also. My advice? Just shop the interest rate and lender fees.
Interest Rate advertising - Be leery of specific ads or individuals that use such terms as “best interest rates”, “cheapest rates”, “lowest rates than anywhere else”, etc, etc Most rates are very close.
Credit scores - There is more to rate than just rate. And even sometimes just the credit scores, such like income issues, actual credit issues, and so much more.
Shop on the same day - Most important tip - Always shop all lenders on the same day. Why? Interest Rates can change daily. And if one of those loan officers follows up with you, letting you know that rates went up and the others didn't, another red flag and use this when making your decision. And if the loan officer is trying to get you to float, how does one know that is the best rate? Just food for thought.
Summary : Just be careful... go with your gut at times. And those that seem to educate you the most, usually have your best interest at hand. Even if they might be an 1/8 of a percent more, that might be your best bet and not the best interest rate or the lowest interest rate. Keep that in mind, because shopping for an interest rate is not as easy as it sounds.
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