How to Shop Around for a Mortgage Loan

Whether you’re shopping for new bed sheets or a new car, the drill is usually the same. Hit the reviews, check with friends, and scope out the best deal. After all, who wants to buy a car that racks up repair bills right away? Yet when picking a mortgage loan, borrowers don’t always think about comparison shopping.

In a Bankrate survey of recent home buyers, 12% of millennials said they believe their mortgage rates were too high. Some buyers may think that when mortgage rates are low, they don’t need to shop for the best offer. But even a few basis points can make a difference of thousands of dollars over the life of a loan, according to Bankrate, the Consumer Financial Protection Bureau, and the Federal Trade Commission.

You may think mortgage shopping is about as much fun as prepping for a tax audit. It’s true that comparing home mortgages can get complicated. But you don’t need a finance degree to make an informed decision. Here are some steps to get there.

Find a Few Lenders

When looking for lenders to consider, loan officers recommend going to a few sources:

• Locals you know and trust: “Make sure the lenders you’re comparing come from referrals from local people you know who’ve worked with them — like your friends or relatives,” advises Jeff Koch, senior vice president of residential lending at Draper & Kramer Mortgage Corp in Schaumburg, Ill. “Wherever you have trust established would be a good source.”
• Your real estate agent: “If you’re working with a real estate agent, find out if they have any feedback or advice on a lender or a loan officer,” 
• Online reviews: These can be a good starting point, DeMarco says. “If you see a lot of really good reviews, that means people are taking the time to provide them.”

Interview the Mortgage Loan Officer

Borrowers need to find someone who will be in there with them and can problem solve. “We call unanticipated problems ‘icebergs,’” DeMarco says. “You think there’s smooth sailing. And then, suddenly, you smack into an iceberg.” 

Check out the lender’s communication strategy and their process for delivering on time. “The process is highly complex, and you’d think professional lenders all would have mastered it. That’s not the case,” says Koch. “When a loan isn’t delivered on time, people’s finances and lives are basically balanced on the head of a pin, which is the closing date.”

To avoid problems, ask questions like these: 

Fact finding about the process:

• Would you take me through the process?
• What should I expect? 
• What will I need to supply?

Compatibility with the loan officer or mortgage banker or broker:

• What’s your communication style? Are you willing to communicate virtually?
• When would I work with you? Are you available in the evenings?
• Will I work with you or a member of your team?
• What do you think of my time frame to get to closing?
• What if any problems do you foresee?

Track record of loan officer and lender:

• How long do loans you process typically take to close?
• How would you expedite the process if there’s a tight time frame?
• About what percentage of loans you work on close on time? What prevents a loan from closing on time? 
• What’s the biggest problem you’ve had with a loan and how did you fix it?

Get and Compare Financial Information

Whether you’re looking at a federal form called a loan estimate or a precursor form called the fees worksheet, you’ll see a breakout of closing costs, explains Koch. “To compare the lender financials, you’ll want to drill down to origination charges in the lender section. Make sure you’re comparing apples to apples. If one lender is offering a 30-year fixed rate at 6.675% with no lender fees and another is offering 6.5% with $1,500 in lender fees, those are unlike products. Get the fees at the same rate to find out which is less expensive.”

6 Tips to Get Mortgage Loan Information

Comparison shopping can get complicated. Here are six ways to keep it simple:

1. Keep Your Pool Manageable

Mortgage shopping “depends on the borrower and the personality type and how they’re wired,” Koch says. “The process can seem overwhelming. That’s why it makes sense to have a select few options to compare so borrowers can process and assimilate them.”

2. Get a Fees Worksheet

The best way to compare effectively is to zero in on the fees worksheet, which the loan officer should provide. “You’ll be able to figure out just what the lender’s direct fees are, and you can make a nice, simple comparison,” Koch explains.

3. Understand a Fees Worksheet Versus a Loan Estimate

The numbers on the worksheet are estimates and not locked in. Interest rates are fluid and change daily or even more often, DeMarco says. On the other hand, after you have a contract with a seller, “the loan estimate and loan application are where the information is binding, barring structural changes to the loan,” Koch says. Make sure the information reflects previous discussions with and disclosures by the loan officer.

4. Be Careful Interpreting Third-Party Fees

Third-party fee estimates are included on the worksheet. Two lenders could each come up with different estimates for title, escrow, or appraisal fees, Koch explains. But not all are negotiable. For instance, the seller (if they are paying for the title policy) chooses the title company, so the lender doesn’t control the choice or the fees. The lender could be choosing the high or low end of a range, but it’s only an estimate. In my experience, lenders estimate high so the client is pleasantly surprised and not upset that the expected cost are more than estimated.  

5. Think About Timing

The rate isn't locked until you are under contract. Some lenders have you verbalize that you want to lock. You'll want to know how long the lock is good for. If you are under contract with a longer timeframe for closing, your rate could change. 

6. Consider Applying for Loan Approval Before Finding a Property

“Many lenders will not do this,” Koch says. “But some will allow borrowers to go through the formal underwriting process — not just pre-approval — without having a property. The borrowers can get a bona fide mortgage commitment with all of the major buyer financials truly underwritten at that point. Then when borrowers make an offer, they can close more quickly.” Providing a seller with loan approval with an offer will put your offer at the top of the list if there are multiple bids. Because this is so rare, it's something listing agents may miss when presenting an offer so make sure the listing agent is aware. 

You’ll have to invest some time and effort into comparison shopping for a mortgage loan and selecting a lender and a loan officer. But your return on investment can pay off over the long haul.

Did you know that your credit can be pulled by multiple mortgage companies and not affect your credit score if they are in the same 14-45 day period? 

Contact me for a list of lenders and let's start shopping!