Anyone that has purchased or refinanced a home has been in the position of comparing mortgage loan offers in their search for the lowest mortgage rate attainable. This can be a tedious and time consuming project. However, if not done correctly and with astute attention to detail, you could make some common mistakes and cost yourselves thousands of dollars. Here you will see the top 3 mistakes mortgage shoppers make when comparing loan offers from competing banks and mortgage companies.
#3 NOT TAKING YOUR TIME
I've listed this first on the list as it is the most common mistake and potentially one of the most costly. What does this mean? It means that very little time was taken to actually compare any offers at all.
It's understandable. We all live busy lives and sometimes we just want our decisions made so we can move on to the next thing on our never-ending list of things to do. Realize though, your home is the single largest purchase you may ever make in your life. Even taking a day to go online and have a couple banks and/or mortgage companies fight for your business could end up saving you tens of thousands of dollars. However, if you're ok with giving tens of thousands of dollars away, refer to the intro to this article.
#2 TAKING TOO MUCH TIME
Have I confused you? No this isn't contradictory to #3. This category belongs to a completely different personality type. This person wants to see the numbers. Generally this homebuyer fits into one of two categories: The "Number Cruncher" or The "Skeptic".
The Number Cruncher just wants to get as many mortgage loan offers on the table as possible. By table, I mean spreadsheet table they created in a spreadsheet program. Often times this can be affective but it takes time to create and time to gather the information. In the interim, mortgage interest rates are doing who-knows-what. By the time all of the information has been gathered, it's days later and the market is completely different than it was when the first mortgage offer was presented.
The Skeptic on the other hand wants to see numbers but doesn't trust any of the numbers they see. Can you understand how that might be a problem? More often than not, the skeptic doesn't even want their credit pulled to even get a legitimate mortgage offer. So then again, like the number cruncher, days go by since they get the first "potential" offer (quote) and then they fall back into category 3 and feel they have to make a decision right away.
#1 PAYING ATTENTION TO THE WHOLE, NOT THE PARTS
Often times we look at everything at once to make a decision when it's the little things that really matter. The same goes for mortgage shopping. "What are your fees?" is the number 2 question next to "What is your rate?" Mortgage rate shopping would be easy if those two questions were that simple. There are a lot of details that go into each. Without getting off track, I won't go into the details of what determines mortgage rates in this article. What goes into fees however, does have an immediate impact on whether your mortgage shopping was fruitful or not.
More often than not, mortgage shoppers make the mistake of looking at closing costs as a whole and not in their important parts. There are mainly 3 types of closing costs: Prepaid items (escrow, interest, prepaid insurance, etc), Lender costs, Title costs and governmental costs charged by the state, city and/or county.
Where the mistake can be made is comparing the total closing costs and not comparing the most important costs - The lender costs. The other numbers, as sad as it is to say, can be skewed or even LEFT COMPLETELY OFF OF THE GOOD FAITH ESTIMATE and the broker won't get in trouble for it. Do you know that RESPA does NOT require escrow information to be disclosed on a Good Faith Estimate? So when you're looking at the bottom number of one lender and see total costs less than another, take a closer look and find out why. Title fees, government recording, transfer taxes, state tax stamps as well as escrow and prepaid interest ARE NOT determined by the lender directly. Most of those charges are going to be the same no matter what mortgage loan offer you choose. So you would be better taking those off your spreadsheet when comparing loan offers.
I could list out the many number of fees that lenders charge but at this point, its probably better to just keep it simple. "ORIGINATION CHARGES" are what you should keep an eye on when comparing mortgage offers. On the Good Faith Estimate or Itemized Fee Worksheet, you will see this section. Here ALL lender charges must be included. Look at this when you compare your mortgage loan offers. Then when you pick the lender you want to use, look at it again when you lock your interest rate. Make sure nothing has changed.
If you keep those 3 rules in mind, you will keep your mortgage shopping mistakes to a minimum and save yourself thousands of dollars at closing and tens of thousands of dollars over the term of your loan.