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What should I know when shopping rates?

Not all rate quotes are made the same. When comparing interest rates from lender to lender, there are a few things you need to consider. Some things to be aware of are the costs, your specific situation, and the ethics of the lender.

The Costs

You MUST consider the lender costs when comparing rates. One lender may offer a 30-year fixed rate of 4.5% and the other lender may offer 4.75%. If that is all you are looking at, then you would naturally choose the lender with the lowest rate. However, if you ask them to send you a total cost estimate assuming you were to lock today, you may find a very different story. What if the lender offering a rate of 4.5% has an underwriter fee of $950, a processing fee of $850, a doc prep fee of $250 and is charging you 1% in points? Whereas the lender offering 4.75% has no fees and no points? Let’s assume you are borrowing $350,000. The difference in monthly payment between the two interest rates would be $53. It would take you 8.7 years of saving $53 a month to recoup the $5,550 you paid to the lender to get 4.5%. You would need to ask yourself if that money out of pocket is worth it to save a little interest when it will take so long to recover what you spent. Again, you have to look at the full picture.

Your Specifics

Rates may vary if the lender does not know the specifics about your situation. Rates can vary based on a variety of factors. Some of these are your credit score, loan product, down payment, debt-to-income, property type, occupancy, the amount you are borrowing compared to the value of the home (also known as Loan-to-Value), whether you are getting cash back, and the number of days the rate is being locked for. If you are comparing one lender to the next, you need to make sure the other lender has all the details about your particular situation.

The Lender’s Scruples

Some lenders may not be providing an accurate or honest picture. Unfortunately, there are lenders that will quote you a low rate without disclosing the amount you would have to pay in points to get that rate. They have interpreted the regulations in a way that says they do not have to provide that information until you are ready to lock in the rate. It is therefore important for you to ask for a written estimate disclosing all costs as if you were to lock today for “x” number of days.

There is another thing that is important to be aware of when you are shopping for rates. Once you start exploring the mortgage process, you may notice pop-up ads with very low interest rates on your computer, social media, emails and phone. You should beware that most of the time these ads come from companies who get paid fees by the lenders to promote them. Most of the time the rates you see, do not really exist without a large cost to get to that rate.

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