When comparing mortgage lenders there are many things to consider. If you want to save time follow the below steps on how to compare mortgage lenders. Time is valuable and so is our sanity and these six steps should help you find the best mortgage lender:
Step 1: Shopping Days and Times
Shop and compare on the same day at the same time of day as interest rates can change frequently. While shopping note the mortgage rate and what day and time you saw it. Since mortgage rates can vary from morning to afternoon, the time of day is important to note along with the rate.
Step 2: Low Interest Rates vs. Value
When you base your shopping on interest rates alone you are ignoring important things like experience, technology, security, service and responsiveness. The low interest rate they offer may come with little to no customer service (i.e. value).
Giving yourself peace of mind and making certain the biggest investment of your lifetime is in good hands has value. A lender can offer you experience and advice, financial counsel, rather than just selling a low interest rate. The mortgage process can be a long journey, so choose a lender that will give you the best experience instead of a “three-hour tour” that ends on a deserted island.
Tip: Refer to a lender’s reviews on Yelp, Zillow, and Google+. If they have a mixed bag of reviews, you might consider someone who has a 5-star reputation. Watch this video “Online Reviews – Check Before You Select” to see more about why choosing a lender based on reviews is important.
“You cannot just shop price alone; you have to shop experience, team, technology and execution as well. If you are just shopping the bottom dollar you are asking for poor quality, you are inviting delays, and some sort of problems are almost certain.” – See more on this on my blog: Shopping for a Mortgage
Step 3: Request a Detailed Quote
When you get a rate quote also get a detailed estimate and breakdown of all of the lender’s costs. You need to see lender fees as well as the interest rate.
If possible I urge you to interview each prospective lender with the Top 15 Questions to Ask A Mortgage Lender or Broker Before You Apply for a Mortgage Loan. If everything checks out, ask for a rate quote.
Mortgage Tip: The standard lock-in terms are for 30-days, 45-days and 60-days.
Red flag: Be wary of “quote and float.” This is when a lender or broker will quote you a rate but they will not lock-in on it. This is a risky move when they will bet on the market changing to a lower rate hoping to match the quote they gave you. If rates move up and they have not locked you in, you could be in trouble and would have to hope that they and their company would absorb what will be a large loss for them or you.
Step 4: Your Actual Credit Score
Do you know your real credit score? I’m not talking about getting your credit score from freecreditscore.com, but the score a lender will get when pulling your credit. Typically the only way to get this score is from a mortgage lender or broker. Lenders consider your credit history from all three credit bureaus: Equifax, TransUnion and Experian. From these three scores a lender will use the middle credit score.
The credit bureaus are required by law to provide you one free credit report a year. Unfortunately, the credit score is not usually included. A consumer credit report company, such as freecreditscore.com or creditkarma.com will provide an estimated credit score, but it can be inaccurate. So don’t be surprised if it does not match the one a lender has.
For more information about how to get your actual credit score read My Credit Score is 760, No It Isn’t.
Step 5: Debt to Income Ratio (DTI)
Debt-to-income ratio is one of the most important factors that is considered by your lender. The bank or lender will look at your DTI to determine if you can afford a mortgage loan along with your other debt payments. DTI is what percentage of your gross income a bank thinks you can spend on a new mortgage and your existing debts. This gives them the ability to assess your risk and financial standing.
When you request a quote from a lender, they will ask you about car loans, student loans, credit card debt, and any other mortgage debt you may have. They will not ask you about monthly expenses such as auto insurance, utilities, cell phone bills, etc.
Mortgage Tip: Create spreadsheet of your finances with the amount that you owe for each debt. This way you can get through debt questions quickly by having these answers ready for your prospective lender.
Read more information on which types of debt to include in your DTI calculation: Mortgage Debt Ratios
Figure out your DTI ratio by using this debt-to-income calculator on Zillow.com.
Step 6: Property Types
Be specific on what type of property you want to buy, whether it’s a single-family residence (SRF), planned urban development (PUD) or condominium.
Multiple-family residential properties (MDU) are similar to an apartment and often labeled as a duplex, triplex and fourplex. These units are either joined under one roof or contained within the same lot.
Condominiums with less than 25% down can have slightly higher interest rates than for single family homes or PUDs.
Planned urban developments (PUDs) have homeowner associations (HOA) where monthly dues are collected to maintain the landscaping and maintenance of common areas, such as a pool or playground.
A townhome can be considered a condo or a PUD, so it may be wise to check with your realtor about the zoning. The MLS is not always accurate with zoning labels, so find out if the townhome has a property number or lot number.
If you have any questions at all about comparing lenders, rate quotes or anything else mortgage related please schedule a call with me.
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