You’re buying a home and shopping around for a mortgage. You’re inquiring of different Lenders for rate quotes. But you’re discovering that while rates might be very similar from one Lender to another, the fees charged by the Lenders can vary greatly.
Consumers can be easily confused by varying rate/fee quotes when shopping around and comparing one Lender to the next. The recently revised Good Faith Estimate that HUD instituted encourages exactly this type of behavior on the part of consumers.
Here are three key points to guide you in comparing rates and fees from one Lender to another:
1. POINTS: if the points are true “Discount” points then by paying points you are obtaining a lower interest rate with that Lender because you’re effectively paying some interest at closing and thus “discounting” your interest rate for the term of the loan. Question the Loan Originators if “Points” being disclosed to you are Discount, or not. If they ARE Discount, ask the same L.O. for the Zero-Points option. You should see a slightly higher interest rate. Traditionally when a Borrower pays ONE Discount Point (One percent of the loan amount) the interest rate is lower by .25% (assuming market conditions are stable and tranquil). Therefore, if you are quoted 3.625% 30yr Fixed with 1 Point, the ZERO Points option should be .25% higher in the rate or 3.875% 30yr Fixed.
2. FEES: Each Lender has unique fees. These include, but are not limited to, Origination fee (which can equal in some cases 1% or One Point), Bank Attorney fee (for New York purchases/refinances), Application fees, Document prep fees, Underwriting and Processing fees, and etc. When comparing fees from one Lender to another it’s important to have all the fees broken down. For example, you may have an estimate from one mortgage Lender with an origination fee of $650. But they then pile on a bunch of the smaller fees which in the end totals out to about $1500. By comparison, another lender may charge only an origination fee of $1800 but NOT the smaller fees. Get a breakdown from the Loan Officer. NOTE: These fees are separate and apart from the DISCOUNT Points described above in section 1.
3. APR: Annual Percentage Rate. The BEST way to compare fees is to check the APR. REQUIRED by Federal regulations is this: if a Loan Officer sends you a rate quote she MUST include an APR in equal font-size and immediately next to the interest rate quoted (in other words, NOT in the fine print). APR includes all the Lender’s fees added to the actual interest rate of the loan (the effective rate) and calculated over the term of the loan to derive an Annual Percentage Rate. When you compare the APR from one Lender with the APR of a different Lender that is the best way to see the difference in fees charged by each Lender. NOTE: The APR will include unique fees charged by the Lender (Application fee, Underwriting fee, etc. as cited above in section 2) AND DISCOUNT Points (if any).
I Hope that helps!
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