Nationwide Home Mortgage Loan Company

Have you ever wondered how to compare mortgages from lender to lender? What a pain! Factor in a salesperson with the “car sales” mentality and you can go crazy trying to decide which deal is really the best. Having worked in the mortgage business for quite some time I thought I would share with you the easiest way to figure out who is really offering the best deal. This method is good for 90% of the people in the home market today.

1) Know Your Credit Situation - One of the key factors of learning how to compare mortgages is knowing where your credit is in the eyes of the lender. If you have excellent credit you probably already have a good idea of what your credit score is, that’s why it’s excellent. If you have “no idea” or know you have less than perfect credit it is imperative that you pay attention here.

Low to average credit is where lenders make the bulk of their profits. I will say this again, low to average credit borrowers pay an average of 35% more profit on the loan over good credit borrowers.

This is not entirely credit related though. It is true that you may pay more for the rates due to your credit situation, but the lenders profit margin does not have to go up, it should be relative to the loan amount. Knowing your credit scores are crucial to effective mortgage shopping. You can learn the programs that each lender is prepared to offer for that score.

Some times you can correct one or two items on your bureau and save thousands of dollars. The key to having your own bureau is to see first hand why the lenders are giving you the rates and terms they are offering. If one lender looks a lot better than the rest he or she may be giving you a quote without thoroughly examining your bureau.

Most lenders will offer the same type of programs, the difference is their profit margin. Knowing your credit score and where you stand in the eyes of each lender will help you make the best decision on your mortgage. You can get your credit scores for free here by joining a credit monitoring program, which can be canceled later if you wish.

2) How long will you need the mortgage for? - If you are truly interested in learning how to compare mortgages read this next section carefully. Here are the facts: statistically most people are in a mortgage 3.5 to 4 years and in their home ten years. That means in ten years most people will refinance their mortgage at least once. They will take equity, get a better rate or add a Home Equity Line or do something to upset the original apple cart.

Think about your own mortgage right now …about 3.5 years? It is very improbable that if you refinance today that this mortgage is the one you will eventually pay your home off with, unless you are retirement age. However most consumers look at their mortgage in “forever terms” or thirty year blocks, and this works to the banks favor and loan officers know this.

When you begin to look at your loan in five year blocks, i.e. what you will actually spend out of pocket in the next 5 years, you can begin to get a reality check on what is the best deal for you. Careful determination and planning is the cornerstone to getting your best deal on your next mortgage. When a borrower is clear about the time frame they will be in their LOAN they can always get the best value.

3) Know how to mathematically calculate the best deal - When considering a loan always insist on a good faith estimate. The GFE puts everything in black and white and allows you to more accurately compare offers. As a loan officer, you would be surprised how many times I have won the competition and had the higher rate. I have also won having higher fees as well. The reason for this is that mortgage borrowers tend to be more conscious of one over the other, and loan officers know this.

For the sake of this example let’s assume that the interest rates you are comparing are close, and they usually are when banks know they are competing. I want you to pay attention to the closing cost that appear on the GFE. Closing cost are represented on the good faith estimate in blocks of numbers that represent different groups of fees. You can view their descriptions here.

The blocks are 800, 900, 1000, 1100, 1200, 1300. Each of these blocks of numbers will have their own fees and charges that appear within that block category. All mortgage lenders closing cost are virtually identical EXCEPT the 800 block of fees. ( That last sentence was in bold for a reason, it is the key point I am trying to make.) The 800 block represents the lenders overhead and profit, everything else is a third party fee and will be what it is regardless of who you choose.

OK, let’s begin to look at our loan over a five year period as described above. Take the principal and interest payment on your Good Faith Estimate (The payment excluding taxes and insurance) and multiply this number by 60 months. Write this number down i.e. 60 x $1000 = $60,000. Now take the lenders fees from the 800 block (only the 800 block) of the Good Faith Estimate and add these numbers together. Do this for each lender you are comparing. You now have your total cost of your loan over the next 5 years. The lowest number wins!

When we begin to look at loans in 5 year blocks, which is statistically smarter than thirty years, we can begin to accurately evaluate who is giving us the best deal. If Bob’s rate is lower than Sally’s but Sally’s closing cost are lower than Bob’s who wins? If you look at this scenario in a 5 year block the only thing that matters is how much will you spend over the next 5 years, rates and fees be damned.

The chances of you being in this loan without refinancing or selling the home in the next 5 years are very slim. The bottom line is “how much will I spend over the next 5 years”. If you are nearing retirement and are attempting to pay your home off in the near future this method is not the best for you.

Statistically, even if you are trying to pay your home off you will still refinance in the next 5 years though. When you begin to look at your loan in 5 year blocks you will win over 90% of the time. If you did not understand this section, please re-read it or contact us for some additional help.

Tags: credit borrowers, credit score, Mortgage Basics, Mortgage Tips

This entry was posted on: Saturday, June 7th, 2008
Other Categories: Mortgage Tips
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