Shopping Around?

Many will shop around for a mortgage loan, and really, all of us want to know what fees are involved and what is APR versus my Interest Rate and why is one higher that the other?  Basically, you want to know how to pick the best Lender?

How do I pick the best Lender?

            Many Borrowers make their decision on what Lender to do based on an Interest rate quote.  There are thousands of stories where the Lender quoted one rate and then all the sudden the rate changed when it came time to make loan application or to lock, or the fees all of a sudden went up thousands of dollars.  There are no repercussions for Loan Originators that play the bait and switch game, in fact many Lenders actually do this so they can “earn your business” by comparing the rate and fees with other Lenders.  Keep in mind that when you get any type of paperwork from a Loan Originator, they are going to do all they can to show you why you should use them verses another, including shaving fees that they know will show up on the final Settlement Statement.

            More than likely, this is one of the largest and most important financial transactions you will ever make.  Most people apply for a mortgage 5-8 times in their entire life…but we do this every day.  If this were a lawsuit would you go to WalMart to get an attorney to represent you or would you seek the most competent individual you could find that would put you in the best position to win?  Buying a home is a legal transaction with financial consequences if you do not perform.  Please make your decision wisely whether you choose the Mark A. Baker Team or someone else.

 To make a decision on the Loan Originator you should use you might want to ask:

1)      What determines Interest Rate movement?  The only answer to this question is “Mortgage Backed Securities” or “Mortgage Bonds”.  Most Loan Originators think it is the 10 year Treasury note & that could not be further from the truth.

2)      If the FED changes rates at the next meeting, what does the mean for mortgage interest rates?  The Fed only determines the “FED Funds Rate” or the “Discount Rate”.  These are both very short-term rates used by Banks to lend/borrow money for overnight transactions with other Banks, depository institutions, or the Federal Reserve.  These rates can impact credit cards, credit lines, some auto loans, etc., but mortgage loan rates normally will actually move in the opposite direction of the FED change due to the dynamics of the financial markets.  In other words, if the FED says they just lowered the rate, more than 50% of the time you will see Mortgage rates go higher at the same time.

3)      What is happening in the market today and where do you see rates moving?  Do you want to work with someone that is an “order taker”, or someone that lives this business every day?  Make sure you are working with someone that has access to Mortgage Backed Securities in real time & you can ask them what the current trend is.  Would you deal with a Stock Broker that is quoting you prices from yesterday’s newspaper and had no idea what market conditions could change your decisions?

4)      Are you a Licensed?  The large banks Loan Originators are exempt from not only licensing but any type of Continuing Education as well.  Ask yourself why this is & if that is who you want to do business with?  Mark Baker is licensed and renews 10 CE credits every year.

5)      Does the Loan Originator get paid a salary even if my loan does not close?  Do you want to work with someone that gets paid whether you get your home or not, or with someone that gets $0 if you do not get your home?

6)      Do the processing people working with me on the loan get paid by the Loan Originator, or are they corporate employees?  Again, if your loan does not close, does it really matter to the Lender?

7)      How long has your Loan Originator been originating loans?  Mark Baker has been originating for 13 years.  He has been ranked as the #1 Loan Originator in the state of Nevada and has been ranked the #30 Loan Originator in the United States for loans closed in a calendar year.  Wonder why?  Ask us.

APR in a Nutshell

One thing that seems to bewilder even the more experienced Borrower (as well as most people in the mortgage business) is the “APR” or Annual Percentage Rate.  Borrowers know the “Rate” is the rate of interest that you pay on the outstanding balance of the loan.  What most don’t know is the “APR” is calculated for each loan in relation to the fees associated with obtaining the financing.  APR is also defined as “the cost of credit expressed in an annual rate.”

So the real question is: Why is comparing APR misleading or incorrect when shopping for a mortgage? The answer is, not only do some Lenders leave out fees when calculating APR, other Lenders might “over-include” fees so as to make sure they are over-compliant with the federal guidelines.  Simply put, there are grey areas in which a Lender can manipulate the APR by simply checking boxes in a software program to make you think you are getting a better deal.

To clarify, obtaining a mortgage loan involves a Lender, Title Company, Escrow Company, Attorneys (in some States), Appraisal Company, and many other third parties that charge fees for their services.  The fees generally included in calculating APR are:

  • Origination and Discount fees
  • Underwriting, Loan Processing, and Document Preparation Fees (Lender Fees)
  • Commitment Fees
  • Title and Escrow Fees
  • Attorney Fees
  • PMI (private mortgage insurance) or MIP for FHA (Mortgage insurance premium) financed
  • Prepaid interest – Interest that is paid from the time that you close to the end of the calendar month.
  • Application fee
  • Tax related service fee

The fees NOT included in calculating APR are:

  • Appraisal fee
  • Credit report fee
  • Title Insurance fee
  • Recording fees (unless Recording Services are included in the fee)

While the overall function of the APR is to measure the true “cost of the loan” by creating a measuring stick for consumers (as mandated by the Federal Government) don’t get confused.  The APR can, and is manipulated all the time, specifically to confuse you. Remember most of the costs associated with APR are 3rd party charges which are Estimates.

What you need to know as an informed consumer to shop your loan accurately are simply “Lender Fees”, current interest rate, and the discount fee or credit to get the rate quoted.  Again, all other fees involved in a transaction are 3rd party fees that have nothing to do with your Lender, but must be disclosed by your Lender by Federal Law. This is why finding a trusted mortgage professional is vital.