How to Compare Rate Offers from Competing Lenders?
Many homebuyers believe they need to shop multiple lenders for the best rates. With so many different industry fees charged, and forms used, it can be hard to determine which lender has the better deal. This will give you a few tips to cut through the long list of itemized fees and industry jargon to easily see which lender has the best deal for you.
First thing you need to know is that lenders only really control two things…The interest rate and the fees they charge. Mortgage quote forms and loan estimates will detail all of the various charges including the lender fees, title and closing fees, state, and local transfer taxes, plus escrows and prepaids for things like your taxes, insurance, and homeowners’ association dues.
Second thing you need to know is that the costs for all items other than the lender’s fees will be the exact same at closing, no matter which lender you ultimately choose. This is because the lender doesn’t control any of those other items and depending on when you receive the estimate, those items may not even be known yet. For example, one lender’s estimate of title fees may be more accurate than the others but that doesn’t automatically mean it’s the best offer. Ultimately, you will end up closing with the title company or attorney selected by you and your Realtor®. Also, no one involved in your transaction can affect the other items such as county recording, transfer and/or real estate taxes. Therefore, all of the items other than the lender’s actual fees will be the same no matter which lender you choose.
Another important thing to understand…based on the two points made above, you can’t determine which lender has the best offer by looking solely at the total costs or even the lenders loan estimate of your bottom-line cash due at closing. These numbers can be swayed if a lender estimates the items outside of their control too high or too low. Cash to close is an important number to consider when purchasing a home, but not the best metric to compare offers from competing lenders.
After understanding those key points, what should you look for to compare offers? Assuming that the rates offered are for the same terms and rate lock period, you really just need to look at 1) the rate offered, 2) the total fees listed in Section A and B of the loan estimate and 3) any lender credit provided to offset those costs. Any lender credit offered will offset some or all of the fees listed in Section A, so subtract the lender credit from the fees charged, you can come up with a net cost after applying any lender credit listed on your estimate. If the lender credit exceeds the fees listed in Section A and B, that remaining credit would apply towards the other typical closing costs such as title insurance, closing fees, etc.
Its really that simple. Lenders are required to disclose to you a wide variety of fees associated with your transaction, but in reality, we only control the rate and the fees we directly charge for your loan. So don’t make the mistake of just looking at the totals or your bottom-line cash to close. Focus in on the rate and those fees listed in section A and B along with any lender credit offered and that will help you choose the best offer.