How To Evaluate Your Mortgage Offers – And What They’ll Really Cost You
Shopping around is critical when you’re applying for a mortgage. According to Freddie Mac, getting just one extra quote can save you as much as $1,500. If you get five quotes, it could save you $3,000 or more.
But shopping around isn’t as easy as it should be. Whether you’re comparing loan offers from different brokers, or you’re trying to decide between a 20-year ARM and a 30-year fixed-rate mortgage, there’s a lot to take into consideration here.
And with the used car-salesman tactics that many lenders use nowadays, the challenge is even harder.
Why Comparing Loan Estimates is Harder Than Ever
There’s an old experiment by psychologist Jean Piaget that shows kids struggling with comparisons. They mistakenly think one glass is fuller simply because it’s taller than the other. In reality, both glasses contain the exact same amount of liquid.
The same premise rings true in the mortgage world. For most buyers, it’s hard to determine just what you’re looking at, let alone compare one offer to another. Throw in that lenders often manipulate the numbers, repackaging them in shorter glasses, as the experiment does, and it can be easy to get thrown off course and choose the wrong (and more expensive) loan offer.
A recent almost-client of ours is a great example. He was comparing a loan offer from Tampa One with that of another broker in the area. In looking at the competitor’s offer, I noticed a glaring misrepresentation of the truth. The broker was spinning a $7,000 escrow refund (which the borrower would get anyway by selling their previous house) as a credit — making his offer look like $7,000 less than ours right off the bat.
Just under that “refund”? He slipped in a massive origination fee — one more than double what most brokers charge to their borrowers. Unfortunately, the borrower fell victim to these misrepresentations. As sad as we were to lose the business, it’s the borrower (and his pocketbook) that will lose out in the long run.
It’s not a one-time occurrence, though. I’ve seen these scenarios pop up often in my 20 years in this industry, and as more and more mortgage options hit the scene, their frequency only grows. It’s why knowing how to review a loan offer and really evaluate the true cost of a mortgage is so critical to today’s buyers.
Mortgage Fees — And What Really Matters When Comparing Mortgage Estimates
When you get a loan estimate, you’ll see dozens of charges listed, and they might vary greatly from one offer to the next. But the truth is, lenders don’t control all of the costs. Some of these are actually third-party fees, which the lender will try to estimate as best they can. Ultimately, these could change slightly by the time you close.
To really compare offers, you need to look at the charges that the lender does control. These specifically include:
- Interest rate
- Origination fee
- Underwriting fee
- Processing fee
- Administrative fee
- Application fee
- Lender credits
Keep in mind that your pre-paids (which include your homeowner’s insurance, mortgage insurance, interest, and taxes) will remain the same no matter which lender you choose, as long as you select the same closing date.
You can also shop around for a better deal on any of the fees under the “services you can shop for” section of your estimate. These usually include things like the survey fee, title insurance fee, and title search.
The Bottom Line
Checking out advertised rates on Bankrate or using an online mortgage calculator is a start, but they’re not going to give you an accurate view of what your costs to borrow are actually going to be.
To fully evaluate your mortgage options, you first need to see the big picture. Compare the entirety of each loan option — not just the cash-to-close — and factor in the long-term costs, terms, interest rate and other features. You should also research the broker or loan officer you’re using to ensure you’re working with a trustworthy and experienced professional who’s worth your business.
Do you need help determining your best mortgage option? Get in touch with The Mortgage Firm Tampa One today. We’ll answer your questions objectively and help you find the best possible mortgage for your unique needs.