It’s always a good idea to shop around when looking for a mortgage. What happens once you have a few quotes from different lenders, though? How do you decide which one is right?
We help you understand the most important factors below.
What’s the Interest Rate?
The biggest thing most borrowers want to know is what interest rate they will pay. This affects not only the amount of your monthly mortgage payment, but also the amount of interest you pay over the loan’s term.
Don’t make the mistake of jumping at the lender with the lowest interest rate, though, this is just a small piece of the puzzle. You have to put all of the factors together. Starting with the interest rate, though, you’ll have a better idea of which lenders you even want to consider.
How Many Points do They Charge?
Next, you’ll want to pay attention to points the lender charges. There are two ways lenders can charge points:
- Discount points – Lenders charge these points in exchange for a lower interest rate. When a lender quotes you an interest rate, it’s important to ask if it’s with points or without points.
- Origination points – Lenders charge origination points to make up for risky loans or to compensate themselves for loans that require a lot of work. Origination points aren’t tied to the interest rate, though.
What’s the Lock Fee?
Eventually you will get to the point that you want to lock the interest rate. Some lenders charge money to do this. You’ll want to know ahead of time what terms lenders have for locking an interest rate. Some charge a fee, while others allow you to lock the rate for nothing, but if you let it expire or need to extend it, they may charge you a fee.
What’s the Loan Type?
It doesn’t pay to compare loans and lenders if they aren’t offering the same type of loan. Ask a lender point blank what type of loan they are using when providing you with a rate quote. Is it fixed or adjustable? Is it a 30, 25, 20, or 15-year term? You can’t compare too different offers – they need to be the same in order for you to figure out which one makes the most financial sense.
What’s the Turnaround Time?
Next, you need to know what a lender’s turnaround time is when you apply. If their turnaround time is longer than your deadline, you may want to look elsewhere. In this case, paying a little more in fees may be worth it to you if you know you can get your loan closed on time.
What’s the Customer Service Like?
You’ll want to know what a lender’s customer service is like as you will be dealing with them quite a bit for the next month or two. You want to make sure they promptly return your phone calls or emails and provide you with prompt answers to your questions.
You also want to make sure the lender carefully explains everything to you and doesn’t just brush over details assuming that you understand. You are taking out one of the largest loans you’ll probably ever take out so it’s important to understand it well.
Who Will Service the Loan?
Last, you want to find out who will service your loan. Is it the funding lender or someone else? If it’s someone else, ask who it will be so you can do your research on them. Many lenders don’t keep the loans on their own books, so there’s a good chance your loan will be sold too.
Comparing lenders and loan offers is a tricky process. You have to take your time and look at the big picture. Consider how much each loan will cost you over the life of the loan and go from there. If you focus on the monthly payment only, you may end up overpaying for a loan just because you didn’t focus on the lifetime costs of the loan. Once you narrow your choices down, you can ask more intricate questions of the lender to finalize your decision.