1st time shopping for a Home Loan: What do I look for???

Going to be purchasing our first home soon (California) and it's time to start looking at how we are going to finance the purchase 30yr fixed. At this point, we're uncertain whether or not to use a broker. I used

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to run a search and compare what lenders are offering in my area (Sacramento). Of course, a long list of items pop up confusing me further. Is the most important thing to look at the APR? Obviously, I am looking for the product that is going to cost me the least in the long run. So is there a reason why I shouldn't just go down the list and select the one with the lowest APR and payment? Is there something I should be looking out for with any of these lenders?

Thanks, Hubert

Reply to
huberttyip
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Have a look at this website:

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, which is an excellent place to find information about different types of mortgages, the role of mortgage brokers, traps and scams of various kinds to watch out for, and so on. The search for the best mortgage for a new home buyer is one area of financial planning where a little research and patience can yield big savings. You are definitely on the right track in being concerned about finding what is best.

Reply to
Don

In a word, no. Actually, the answer depends, in part, on your financial situation, now and in the future. Also, APR is not a good number to compare, despite its intention for that purpose.

Two lenders might offer the same APR for the same type and duration of loan, but they differ significantly in monthly payment (i.e. interest rate) and up-front costs. If you have little funds on-hand, but you can handle a higher monthly payment (both now and in the future), you might opt for the lender with the lower up-front fees, but higher payment.

On the other hand, that is usually short-sighted. It is usually better to find some way to scrape together whatever money you need up-front, and get the monthly payment as low as possible. It is difficult to predict your future financial situation. But keep in mind that difference between a 6% loan and 6.25% loan (30-yr fixed), for example, is only $16 per month. It is up to you whether that is worth any other differences. But usually, a difference of a few (or a dozen) basis points (1/100th percent) is not worth any other compromises that you might have to make.

Bottom line: I would focus separately on the amount of monthly payment (or interest rate) and the amount of up-front costs, not the APR.

However, you usually cannot learn about __all__ of the up-front fees costs you are approved for the loan. The Truth in Lending law has a loophole: as long as the lender explains that the rate may increase after consummation, they can advertise just about anything.

So when you talk to a lender, be sure to ask if: (a) they are providing you with a reasonable estimate of __all__ of the up-front costs; and (b) if those costs are likely to increase after consummation, why and by how much. And do get all that in writing. I like to ask for a disclosure statement with line items for __all__ costs, even if the amount is blank.

Another criterion in the selection process: whether or not the lender will require that you pay PMI, which is added to the monthly payment. Again, they usually cannot tell you that "for sure" until you apply for a loan. But they should be able to tell you their criteria for requiring it. I think that varies widely among lenders.

Reply to
joeu2004

Ask questions. Compare products. If you are offered two equivalent loans (same apr) from two places, compare closing costs.

I have bought two new houses and refinanced them both. By the 4th close I was MUCH smarter than the first- learning how to compare lines on the closing costs (Good Faith estimate) and what many of the lines meant.

Some (most?) brokers charge a fee- this fee is something they will use to buy your rate down when they sell the loan. You get no tax credit for this fee.

If you took the same amount and paid the point yourself, you would have a lower apr and could deduct this come income tax time. But it's more work (to find the lender). Ask friends for referrals. Ask a realtor for referrals. See what shakes out and trust your judgement.

For example, there was someone at NASB which handled our refinance and I would recomend him again. NASB was 600+ miles from us (everything was done over phone or via e-mail). I had to do some work to find an appraiser, and he had to find someone to close on the loan for him from my area.

But we closed the loan in my living room and I have a realtor which appreciates making referrals. So all is good.

Reply to
jIM

I should add: that is another reason why I wrote: "APR is not a good number to compare, despite its intention for that purpose".

Reply to
joeu2004

All the above is good advice, but one further point should be mentioned. If you have good credit and a substantial down payment, or some combination of those two things, mortgage interest rates are negotiable. Most banks will be happy to get your business and will offer you a lower rate than the one they put in the newspaper advertisements. It is a good idea to shop around among various lenders. And be sure to let each lender know right away that you are shopping around and making comparisons. In addition to negotiating a lower interest rate, in many cases you can also have various fees and expenses waived or reduced (things like "application fees, appraisal fee, legal fees, etc.)

Reply to
Don

Hubert, if you don't mind subjecting yourself to some email for awhile, you might try lendingtree.com. If nothing else it's a good way to get a half-dozen actual offers to compare and if they stink, you can just do something else. I ended up getting a mortgage through the site (via a Texas lender I'd never heard of) and it was significantly better than what the CA broker worked up. If the guy had done a bait & switch on the fees, there was another lender from the site offering almost identical rate + costs. I'm sold on the lending-tree concept (there are probably other similar sites out there too).

One you're set on a 30-year fixed, it really is just a horse race on the rate, factoring in the costs each will charge. Seems to lend itself to an internet-based bidding process...really, what kind of "service" could someone provide, to justify higher costs/rate?

-Tad

Reply to
Tad Borek

Are you a member of a credit union that gives mortgages? If not maybe you should join one. They are very usually much easier to deal with. Sometimes their rates are slightly higher but usually their closing costs are quite small and many of them still don't sell their mortgages. I prefer them to the big money companies that just repackage and sell to the highest bidder. Thumper

Reply to
Thumper

30yr fixed is good. The APR takes into account the points, if any, and there's a trade off there. You can often 'buy the rate down' by paying more points. I recall 2pts would buy the rate down by 1/4%, I may be off there. I'd invite you back once you've narrowed it down. I favor paying a bit more in the rate for the lowest closing expenses. A zero pt, zero closing, if available in that area, is ideal. If the rate drops 1/2%, you can just go back and refi. The refi also offer an opportunity to throw some money at the principal, and pull the term in. For the house I'm in now, I went from a 30 year (2 yrs old) to 20 yr for the same payment. Large closing costs and points make this strategy tough. JOE
Reply to
joetaxpayer

The idea of searching for a mortgage online is very tempting. Is there anything I should be watching out for when dealing with the lenders that pop up. Are the rates that they show the actual rate/ fees that they are going to give me or are they going to try some funny business once I call them back or go to sign some papers? That part is a little scary.

Thanks!

Reply to
huberttyip

I would avoid on-line lenders. They have a reputation for not being ready on closing day, and for not having checks delivered in time for a closing. I recently had a deal that involved one of the oldest on-line lenders. They blew 3 closing dates. When they actually had the paper work in had, they came with a company check, not a cashiers check, so the closing could not be completed.

You don't want to put up with that kind of mess. You want someone local who knows how to get things done in your area, and someone that you can go grab by the neck if they screw up.

-john-

Reply to
John A. Weeks III

There are many pitfalls in dealing with online lenders. Although there are some good ones, the problem is that a first time home buyer is not usually able to sort out the good from the bad. Being quoted a low interest rate and then finding out something has been overlooked and you have to pays a higher one just before closing is a common occurrence. There are other tricks and scams to watch out for. Here is a page where you can get more information:

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(one part of the web site I mentioned in the previous post).

Reply to
Don

I imagine it depends on the specific lender. For me it was painless and the way they quote the APR and fees is standardized on the site so the comparison was easy. You get maybe a half-dozen quotes in your inbox on the site and then the emails start. The emails are a pain but they lay off once you tell them you've closed (still - you might set up an address just for this). There were no surprises on fees/etc, at least in my one experience. The appraisal was more expensive than normal but the house was in an unusual/remote area. And if the couple-hundred bucks there was some kind of markup I still ended up so far ahead I'm happy to pay that.

It probably helped that I was looking strictly for 30-yr fixed, the guy called it a plain-vanilla. I could see where fancier loans could need more hand-holding. And again, I'd scrutinize every lender separately and look for junk fees, bait & switch -- and go to the next guy on the list if that happens.

JohnW mentioned messed up closings but that doesn't seem unique to mortgages found online, I hear those things happening occasionally with traditional lenders as well. And to the extent the online guys are any worse, I'm sure there are good ones & bad ones among them. Names, John...?

-Tad

Reply to
Tad Borek

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