Part I: The 5 Secrets of Being a Skilled Mortgage Shopper

In prior mortgage shopping posts, I have explained why you should go beyond shopping for the rate, given you a series of questions to gauge a mortgage professional’s financial expertise, and explained the real bargain, which is a mortgage professional who has earned your trust and confidence. Now it’s time to unveil the five secrets of shopping effectively:

1. If It Seems to Good to Be True, It Probably Is.

Deep down, you know this! If the interest rate is discounted much lower than the competition, there is a reason. Mortgage money and interest rates all come from the same place. If it seems like you are getting an unbelievable deal, you are right, it is not believable. Ask a lot of questions and discover the hook. Is there a prepayment penalty? Are you being charged two or three points upfront (1 point equals 1% of the loan amount) to obtain said rate? What is the length the quoted rate is locked? An incredibly low rate means you need to ask a lot of questions!

2. Make the Correct Comparisons

We all know the biggest concern when it comes to mortgage shopping is “What’s the rate?” Comparing interest rate to interest rate is not necessarily an accurate comparison. Again, most mortgage rates are a commodity, meaning the rates are set by the market, not the lender. What makes the difference is what a mortgage professional will charge you upfront and their fees.

Comparing fees is a must, as these are the only costs that a mortgage professional controls. But beware, sometimes fees are under-quoted upfront to make the bottom line appear lower. Even comparing APR (Annual Percentage Rate, which is your effective interest rate that includes your quoted rate plus all of the costs involved in the loan) is not a cut and dry comparison. APR can also be manipulated as some lenders calculate APR differently.

The best way to make a true comparison is to obtain and compare good faith estimates from your mortgage professional with all of their costs on the same program at the same rate. Subtract all of the fees independent of the loan, such as homeowner’s insurance, title fees, escrow fees, etc. Now add up all of the loan fees. The mortgage professional that has the lower fees has the cheapest loan.

These are the first two secrets for shopping effectively. Next time, I will round out the top five and arm you with the tools to be a knowledgeable and effective shopper. So until then… Be effective!

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