If you’re going to be in the market for a new mortgage or to refinance your current one, you’ve got to do more than ask a lender what their rate is today. Actually, the rate you are quoted today may have no resemblance to the rate you will receive at the closing.
Another factor to consider is the possibility that you may choose a lender who quotes lower rates, but charges higher fees to close the loan than others. In this case, the money you save with a lower rate will be lost by paying above-market closing fees. Comparing lenders must be done correctly so that you can make the best informed decision regarding where to place your mortgage financing.
Here are the questions that you should ask each lender you interview:
WHAT ARE YOUR RATES? Write down the interest rates that are being charged for the type of loan you are considering. The interest rates will differ depending on the length of loan period and the profit margin being sought be each lender.
WHAT ARE YOUR FEES? Some lenders will quote lower than market rates and make the difference up with higher fees. Ask for the name and amount of each fee that will be charged in order to apply for processing and to close the loan.
WHAT IS YOUR LOCK POLICY? Some lenders guarantee that the interest rate promised at the time of application will be the same rate you receive at the closing. Other lenders allow the rate to float with the market. This means that you really have no idea which rate will be available on the date of closing. Ask the lender if they lock and if so, for how long so you are assured what your payment will be once you close. Those lenders who will lock in the rate may charge varying fees for this service. Some will charge one percent of the mortgage amount and others will not. Like all other fees, be sure to ask up front so you don’t have any surprises.
DO YOU HAVE ACCESS TO ANY DOWN PAYMENT GRANTS? From time to time, the Illinois Department Housing Authority (IDHA) will have down payment grants for first-time homebuyers. I have had many first-home clients over the years qualify to receive it. The big bonus is if you stay in the home long enough, you most likely will not be obligated to pay it back. Though the grants are typically around $5,000, I had one first home buyer receive $10,000 – $5,000 from the state and another $5,000 from the city where the property resided.
ADVICE: As I will not even put a buyer in my car without knowing what they are able to buy, I feel that you should start your quest to homeownership by getting pre-approved by a lender. Assuming that you are using the services of a Realtor®, I strongly suggest that you ask them for a list of their preferred lenders knowing that they will be involved in your ultimate decision, and the lender–Realtor relationship is key to making it to the closing table without issue.