Looking for a Mortgage Means finding a Lender, not a Loan

As a first time homebuyer specialist, many of my clients are shopping for a new mortgage. It can be a little confusing for people the first time around. Here are some tips on how to find the right loan and more importantly, a good lender. (This is part 1 of a 2 part post).

Don’t fall into “The Interest Rate Trap”
Many mortgage shoppers make the mistake of only comparing interest rates. It is very important to call 2 or 3 (or more) lenders and get a good faith estimate. Some consumers only ask about the interest rate, and they don’t ask anything else. Certainly interest rates are important, but there are many equally important factors to consider that will impact the cost of the loan. Here are a few factors you need to know about.

1. What are the costs and fees associated with the loan.
Sometimes these fees include “points” to pay now for a lower interest rate later.  Other fees will pay the mortgage broker, pay for physically mailing your signatures around, and cover filing costs.

2. What are the exact terms of the loan and how well to they fit your circumstances.
A 30 year fixed term loan will not change interest rates over the 30 year term, but will have a higher initial interest rate than a 5 year ARM which adjusts it’s interest after the first 5 years of having the fixed rate. This means your mortgage payments may increase (and possibly substantially). If you know you’ll be moving prior to that event, the lower interest rate will save you some money. Make sure there are no early pay-off fees or unexpected balloon payments (which are unusual with residential loans).

3. Will they approve your loan in a timely fashion and will they deliver your loan ON TIME with the terms they promised.
In other words, will the lender avoid last minute surprises and deliver what they promise. (Experience reveals this isn’t always the case.) The promise of a low rate is meaningless if the lender doesn’t deliver. Remember, you’re not just shopping for a loan. You are shopping for a lender.

Internet Lenders and Advertised Rates
While there may be some good internet lenders, it is very difficult to know who or what you are dealing without any personal contact. Real Estate Laws and closing procedures vary greatly from state to state which puts internet lenders in challenging position when competing against locally based mortgage brokers. It may be difficult to determine with any certainty if the internet lender has enough knowledge of Colorado Real Estate procedures to insure a smooth process. Colorado requires all Mortgage Lenders who lend in our state to be licensed you can go to http://eservices.psiexams.com/crec/search.jsp and check to make sure any lenders you talk to are approved. When you see advertised rates, look for this disclaimer – “this is not an advertisement for credit as defined by paragraph 226.24 of Regulation Z”. Reg. Z is the Federal Truth in Lending Law. When this disclaimer is present, the Lender is telling you that the ad does NOT comply with the Truth in Lending Laws!! Also, if the Lender advertises an “APR”, but NOT the actual interest rate, look out for a lot of extra fees, points and costs. Contact me with any questions about Truth in Lending laws or T.I.L. disclosures.

Part 2 of this 2 part series will cover the specific line items you’ll want to look over on the good faith estimates you’ll be getting from your potential lenders.

This article was written in colaboration with Joshua T. Dutton who works as a Mortgage Broker with Coldwell Banker Home Loans.  He can be reached at: josh@cbhomeloans.net.