Your mortgage rate and your mortgage fees are two major factors that can affect the total cost of your loan, so it’s essential to pay close attention to these numbers when applying for a mortgage. However, the biggest mistake you can make when applying for a mortgage is to ignore these two important factors, as doing so could result in you overpaying by thousands of dollars over the lifetime of your loan. Keep reading to learn more about avoiding this mistake and getting the best possible rate and fees on your next mortgage.
Prepare to shop
Begin by shopping around and getting pre-qualified to buy. Many homebuyers make the mistake of getting pre-approved, which gives you a specific loan amount based on your income and assets. Shopping around with more than one lender can help you get more accurate estimates of your mortgage payments. Get multiple quotes from lenders—comparing costs and rates (see below)—before choosing one to do business with.
Explore loan choices
Before applying for a mortgage, it’s essential to explore your loan choices. Most people choose between FHA and conventional loans, but several other options are available. Choosing too quickly can lead to unnecessary fees, like higher rates and closing costs. Take time to research your options before deciding which lender and loan are best suited to your financial needs. Avoid rush decisions to make sure you are making a choice that is right for you long-term. After understanding your options, you will be better able to decide what type of loan product would be best suited to help meet your financial goals. Once you have explored your different loan choices, don’t forget to discuss with a lender or loan officer which could work best for you. They are familiar with most of these products and will understand how they compare to each other and their benefits and disadvantages. In addition, lenders may offer valuable suggestions on how any one option may match up with what you hope to achieve. By choosing carefully before making a decision, homebuyers can enjoy peace of mind knowing they got everything they wanted out of their home financing process – even if that takes longer than expected!
It’s wise to compare rates, but that’s not all. Make sure you have a clear picture of all fees and other costs associated with getting your mortgage. These include origination and application fees, processing fees, points (mortgage lingo for up-front interest), title insurance and other closing costs. And don’t forget about taxes and insurance premiums.
Origination, Underwriting, and Processing Fees.
One of the biggest mistakes homebuyers make is that they don’t do their homework. Buyers think that they’re getting a good deal on their mortgage, but they fail to realize that they could be paying thousands of dollars in unnecessary fees. Before signing your paperwork, check if you are being charged with any add-on or surprise fees (Statutory Fees Vs. Mandatory Fees Vs. Customary Fees).
Know which fees are negotiable
Some fees are negotiable, and some are non-negotiable. In fact, it is not that fees are negotiable per se, but some Services that are required to originate the loan like (credit report, appraisal, etc) are not allowed by the lender to be picked by the borrower. Hence they are deemed ‘Services You Cannot Shop For’ (Section B. of Official Loan Estimate) whereas there are Services that by law, allow the borrower to pick. And those services are typically cheaper elsewhere than what your lender/bank provides.
Why am I so certain? Stay tuned, I will do a separate blog on this topic in detail.
Let them know you’re serious
Let them know you are serious by bringing quotes from other lenders showing the same services being provided for lower fees. Showing that you’re going to another lender means they will either have to beat that quote or they could lose your business. If they don’t seem worried, just walk away and take your business elsewhere!
When applying for a mortgage, you generally have at least two possible rates and options from which to choose. The lender is aware of these possibilities, too, so they’ll often attempt to get you locked into an agreement by providing you with an initial Loan Estimate that can seem reasonable at first glance. However, it’s important to remember that your best bargaining chip is usually having Loan Estimates from other lenders in hand. So get out those loan offers and start comparing!
How do you compare official loan estimates from two lenders?
You might notice that two LEs from different lenders sometimes look quite different – even though they’re supposed to be exactly the same. That’s because each lender is allowed to produce their own version of what’s known as an LE – so it pays to pay attention. The good news is that comparing LEs from two different lenders can often help you spot mistakes and make sure you’re getting good value for money on your mortgage. The only caveat here is that, while you may do well using our tips on how to compare official loan estimates, there are many other factors involved in getting a good deal on your mortgage (such as making sure you are comparing apples-to-apples) so you should still always ensure you’re well informed before taking out any new loan or mortgage.
Don’t just assume all these fees are legit: If something doesn’t add up when you get more than one estimate from different lenders, say so. Banks have been fined millions of dollars for advertising incorrect fees in past years and know that borrowers regularly lose out by paying them extra interest payments over the life of loans due to improper charges being applied. Remember – it’s still your responsibility to make sure no lender is trying to pull a fast one on you.