Mortgage Shopping? Ask These 7 Questions for a Better Offer

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You know that getting a lower rate means a lower mortgage payment. This is true regardless of whether you are buying a house or refinancing. But where do you begin? Do you apply online and in turn have your information sold to multiple, probably pushy salespeople? Do you contact your bank, hoping to get a break since you have money stored there? What about the constant letters, emails, and advertising banners from your current mortgage servicer? We answer this question by comparing who has better mortgage rates.

Regardless of the type of lender you are working with, there are 7 critical questions will give you an edge in negotiating your next mortgage. Before we get to the questions, you should know how banks, direct lenders and brokers make money.

How Banks Make Money

Banks and credit unions make money on the interest rate they give you. They make money by either servicing your mortgage or selling it on the secondary market. The amount of SRP paid is based on the value of the note when it is sold off. Banks usually lend their own money and operate at a high overhead. It’s expensive to staff top earning underwriters and funders. Therefore, It’s in a banks personal interest to give you the highest rate possible to make a profit.

How Direct Lenders Make Money

A direct lender or lender also makes money on the interest rate sold to the consumer. While some more prominent direct lenders service their mortgages, most medium-sized, and smaller lenders sell mortgages as soon as closing on the secondary market. You see, lenders have an expensive line of credit which they use to fund loans. By borrowing money for a short-term from a bank or a private institution. You can expect higher rates from a direct lender because of the cost to operate lines of credit along with the high overhead required to act as a direct lender. They too make a large profit by selling you a higher rate.

How Brokers Make Money

Brokers make money by pairing your mortgage with a wholesale lending partner. Brokers set compensation with each wholesale lending partner, approved every quarter, and may not deviate from this set amount. Brokers usually do not have a line of credit or employ high salary underwriters and funders. Instead, the wholesale lender will underwrite and fund your home loan. As a result, most brokers may operate with very little overhead fees. Not all brokers pass along the savings; we do. We designed Candor Mortgage to run very efficiently using the latest technology. We do not pay our people commission because we want them concentrating on your needs, not their wallets. We are compensated by our wholesale lending partners. 

Key Factors that Will Affect Your Pricing

There are a few things you should know before contacting any company and getting a rate quote or getting pre-qualified to buy a home. The first thing is your credit score. Your credit score is one of the main factors that will impact your interest rate or closing costs. Credit scores range from 300 to 850. A credit score over 740 will usually qualify you for the best mortgage pricing. It’s important to know that while you may get a bank’s best pricing, it could still be higher than what a broker like Candor Mortgage may offer.

You should also know how much you can expect your home to appraise. You’ve probably received flyers from realtors listing how much your neighbors are selling their homes for. Those are usually a pretty good indicator of your home’s value if your home is of comparable quality. You should also check that against online search tools, like Zillow; we can also send you your home’s estimated value. We don’t need to pull your credit or make a loan application to do this.

Learn to Talk Like an nsider with some Industry Jargon 

Knowing industry terminology will help you when shopping for a mortgage because it shows that you are savvier than the typical borrower. Understand these terms for a better shopping experience:

  • Par Rate: The par rate is the interest rate a borrower may qualify for without any markup or interest rate manipulation. In other words, it’s a rate without paying any points nor yielding much lender credit.
  • Loan-to-Value (LTV): The LTV is a term often used to describe the ratio of a loan to the value of your home. For example, if your home is worth $600,000 and you are getting a new mortgage for $300,00, your LTV is 50%. LTV = Home Value/Mortgage. If your LTV is at or below 60%, you can expect better mortgage pricing.
  • Lender Credit: When you select an interest rate above par, you may receive a credit which will be used to offset closing costs. You accept a little higher price in exchange for less closing costs.
  • Discount Point (points): A point is a an amount you pay as a tradeoff between higher closing costs and interest rate or mortgage payment. Usually, a point is 1% of your loan amount, but they may not always be round numbers.
  • SRP: After a mortgage closes, it may be sold on the secondary market. A service release premium (SRP) is compensation received by a bank or lender on the sale of a closed mortgage loan.
  • YSP: A Yield Spread Premium is similar to SRP. It is compensation received by a broker for selling an interest rate above par. In 2010, President Obama passed the Dodd-Frank as an answer to the 2008 housing crisis. The act made YSP illegal.
  • FNMA MBS: We mention the Fannie Mae (FNMA) Mortgage Backed Security (MBS) because it is a way for you to see and actively track interest rates movement visually.

7 Questions for Getting an Accurate Loan Estimate

  1. What is your best par interest rate you can offer with no points or lender fees?
    While this seems like a fundamental question to ask, you will be surprised how many responses you will receive, most of which will be indirect. Par is the rate a mortgage loan originator is offering without any markup or discount. By getting the par rate from company to company, this will allow you to compare mortgage offers accurately.
  2. What lender, appraisal, title, escrow, notary, and 3rd party fees do you charge? I would like to know the total closing costs.
    If you are shopping lender types, you will discover that lender fees, appraisal, title, escrow and 3rd party fees will vary from company to company. By comparing the par rate with the total cost to obtain a mortgage, you are well on your way to comparing and getting your best mortgage offers.
  3. Do you charge a fee or deposit to lock and when may I secure my lock?
    This may seem like something minor, but it’s very important. Here is why. A company charges a lock fee (often non-refundable) to ensure you will move forward with them regardless if you find a lower rate. A common practice with some companies is not locking a loan until the appraisal is received. From initial conversation, this could be as much as 10 days where a borrower is at risk against the market. At Candor Mortgage, we do not charge any lock deposit fees and rely on our service and pricing to earn and retain your business.
  4. Are there any mortgage discounts or promotions I may be eligible for?
    Affordable lending programs like Fannie Mae HomeReady and FreddieMac HomePossible are not only for first-time homebuyers. If a lender is not knowledgeable or doesn’t have a system in place to check, you may miss out on possible additional savings.
  5. Can I get an estimate in writing?
    If you have followed steps 1 to 4 so far, you should have a legitimate rate quote. It’s time to get your loan estimate in writing. Make sure you request all the rate options you discussed in writing along with any associated closing costs and lender credits.
  6. How quickly can you close my loan?
    Asking the lender “How quickly are you able to close my mortgage?” is hugely important because closing quickly indicates competence. Plus, who wants to deal with a mortgage application for more than a few weeks? We often close or are ready to settle in 11 days at Candor Mortgage to give you an idea.
  7. Do you have a price match guarantee?
    We include this because we see this as a new trend which is alarming. A price match guarantee is usually nothing more than a sales tactic designed to build confidence in a particular company by making you think you have a safety net. If you read the fine print, nothing could be farther from the truth. We at Candor Mortgage choose not to have this type of guarantee because we do not need to. We are giving you our best loan offer upfront without holding back or trying to trick you into thinking you are getting a better mortgage than you are.

Good job reading this article and if you follow these steps, you will be able to make an apples-to-apples loan estimate comparison. Getting and knowing the numbers upfront without high-pressure sales or bait-and-switch tactics will help you choose the right mortgage.

The Critical First Step in Buying a House

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You may be shopping for a house but did you remember to shop for a mortgage? According to the Consumer Financial Protection Bureau, “nearly half of borrowers do not shop for a mortgage…”¹ As a result, these borrowers got either a higher rate or paid more in closing costs. This is why we recommend shopping for a mortgage before you start looking for a house. Finding the right mortgage can be complicated. As with any other major purchase, you’ll want to shop around before making a decision. Choosing the right mortgage begins with choosing the right lending company and asking the right questions. However, what do you need to know to start shopping for a bank, mortgage broker or lender?

Here at Candor Mortgage, we’re here to help you discover what loan is best for you by asking the right kinds of questions, listening to your needs, understanding your goals and giving you the best advice. While other companies practice pushy sales, we practice candor. It probably helps that we designed our mortgages with competitive pricing, costing less and requiring less paperwork. We are confident Candor Mortgage is the best home loan broker, we’re telling you not only how to shop but how to get the best mortgage anywhere.

What Are Your Needs?

The first step is to sit down, assess your spending and make a budget for the new house payment. Then ask these questions: What are my needs? How much do I want to spend on a new home? How much do I have saved for a down payment and closing costs? Is this the right time to buy? Am I looking to buy a home for long-term investment purposes, or will this become my primary residence? If you are buying with someone else, talk it over. These and similar questions will help you develop a better understanding of what direction you want to go in. With these questions in mind, you’ll be better prepared to purchase a mortgage that’s right for you.

When you work with Candor Mortgage, you won’t be forced to answer these questions alone. Through our unique approval process, we’ll help you step-by-step in explaining these and other vital matters.

Do you know your credit score?

After you assess your needs, it’s time to check your credit. There are three major credit reporting companies: Equifax, Experian, and TransUnion. You may get a free credit report from all three companies at www.annualcreditreport.com. It’s an excellent place to start if you haven’t looked at your credit in awhile. You may use these reports to check for errors carefully. If you want to know your actual credit scores or FICO scores, you will have to pay. If you do check your scores, you will want to check all three scores. Your scores will likely differ between the three credit bureaus. For lending purposes, most lenders will use the middle score.

Instead of going at it alone, we can help you obtain your credit report with all three credit scores. Then we will review it with you checking for any errors or misreporting. We can even help you make corrections which will often improve your FICO scores. Credit scores range from 300 to 850. It’s important to know your credit score because the interest rates you will be offered will depend on your credit score. Borrowers with a credit score above 740, typically get the best interest rate options. Want to know your credit score?

How much money do I need for a down payment?

One of the most significant costs to weigh when shopping for a mortgage is the down payment. This principal payment is typically referred to as having to be 20%, but this is not true. A down payment can range from 3% to 20% or more. While a lower down payment may come with higher interest rates, this is not always the case. Loan options like those offered by the FHA or VA provide home buyers with a flexible way of buying a home. There are also affordable home financing programs like Fannie Mae’s HomeReady, which we feel is a better option than FHA loans for creditworthy borrowers. Here at Candor Mortgage, we are constantly on the lookout for the best ways to save you money.

If you are able, it is also important to note that it can pay off to put more than 20% down, not only to lower your interest rate as previously mentioned but also to signal to lenders that you’re more than capable of paying back the mortgage loan. Further, most sellers prefer a higher down payment. Don’t forget to budget for closing costs as well when figuring out your down payment amount. Our verified pre-approval will help determine what amount your down payment should be and where in your finances it should come from.

How can I get the best or lowest interest rate?

Another and significant factor when shopping for a mortgage will be interest rates. You’ll have to think about interest rates not only when deciding what loan schedule is best for you, but also when it comes time to consider other aspects of your mortgage, such as how much to pay as a down payment. While the market dictates the overall trend for interest rates (go up and down), this is what you can do to get the best rate options.

The first factor needed is for your credit score to be above 740. Having your credit checked early in the buying process is our top recommendation. At Candor Mortgage, we often help buyers improve their credit scores by reaching out to the three bureaus to correct any false information. The second factor that will enhance your mortgage pricing is putting more money down or qualifying for an affordable mortgage product. Putting more money down makes your mortgage less risky, and lenders often reward you by giving you a better rate. An affordable mortgage like Fannie Mae’s HomeReady usually has a better interest rate and lower private mortgage insurance, both of which will give you a lower mortgage payment. The third factor is choosing the right mortgage lending company.

There are three types of mortgage companies: 1) banks or credit unions, 2) lender or direct lender, 3) mortgage brokers. As we discussed in a previous article, traditional banks and credit unions tend to be much slower and have higher rates and costs. The person you talk to at the bank often is not the one working on your mortgage. Banks make money by charging fees and higher interest rates. Lenders and direct lenders, the second type, have one or multiple lines of credit they use to fund loans. The additional overhead and cost to operate as a direct lender are usually passed on to you. Just like banks, the person who enrolls you is often not the same person who is working on your loan. Direct lenders make money by charging higher rates, origination and lender fees. This type of company does not need to disclose certain fees and can make a big profit on the interest rate they give you. Therefore, it’s safe to say, most direct lenders will have higher rate pricing and costs. The third option is independent mortgage brokers. A mortgage broker like Candor Mortgage has access to multiple wholesale lenders without any of the overhead. Uniquely to us, we use web software to compare multiple wholesale lenders’ pricing. We use cost-saving technology to run efficiently, and this allows us to pass along any savings to you. The person with whom you speak is the same person working directly on your mortgage.

One more thing, if you are working with a real estate professional like a Realtor, there is a good chance they’ll recommend that you use their in-house or preferred lender. An in-house lender may or may not have an ownership affiliation. In the end, you may choose to work with the company who is not only giving the best mortgage but more importantly who you feel has your back. At Candor Mortgage, we’re committed to providing accurate and transparent rate quotes that are helpful for you. Our rate quotes include all associated fees and costs. You’ll never run into any ‘bait-and-switch’ tactics with us.

How much will I pay in closing costs? What fees will I pay? 

Finding a way to lower your interest rates can certainly be beneficial, but it’s not the only way of saving money. Closing costs refer to the various fees that come with your mortgage, on top of its selling price. In California, the seller chooses the title and escrow company which will determine the majority of the loan fees. Some of these fees may include lender fees, appraisal fees, title insurance fees, owner’s title insurance fee, escrow settlement fees, and homeowner’s association fees, among others. These costs can quickly add up. Choosing the right mortgage company that will not only close your loan fast but also gives you the most value is crucial. Our pre-qualification and verified pre-approval processes will be upfront with you about what closing costs to expect so that you can adequately prepare.

Loan Term and Mortgage Programs

The schedule by which you pay back your mortgage loan will vary depending on whether you opt for a fixed-rate mortgage or an adjustable rate mortgage, or ARM. Fixed-rate mortgages are typically offered in either 15-year or 30-year arrangements. These options will provide some stability and consistency to your debt payments, and may be best for you if you plan on staying in this home for the long-term. The more consistent, fixed-rate mortgage options do tend to come with higher interest rates than do ARMs. An ARM will start at a fixed rate (usually for a period of 5 or 10 years) and then transition to an adjustable rate, based on market fluctuations. A unique type of ARM is a 5/5 ARM. It has a 30-year term with a fixed interest rate for the first 60 months. It adjusts in year six and every five years after that. Therefore, you can expect adjustments in years 6, 11, 16, 21 and 26. Therefore, this may be a more stable adjustable mortgage option. If you know you will be moving in 5 years; an adjustable rate mortgage may be a good fit. Candor Mortgage’s knowledge-based approach to helping you shop for a mortgage can help separate fact from fiction about different loan options and determine what’s best for you. For more clarification, check out our guide to navigating common myths about buying a home.

Overall, when shopping for a mortgage, it’s of the utmost importance you choose the mortgage company that not only will give you the best mortgage but deliver on your loan closing. By choosing the right company, you will be able to move forward to buying a house with confidence. At Candor Mortgage, we’re committed to helping you find a mortgage and a home that’s best for you. Our expert team will work with you every step of the way.

Sources:

  1. http://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf