Shopping for a mortgage – The only tip that matters.

I thought I had it right.  My mortgage broker said “No points and (a very low) rate.”

Fortunately, I have a very honest mortgage broker.  He could have hit me with a bunch of fees, but did not.

How do you compare lenders?  Ask for a GFE (Good Faith Estimate).  Shoppers can ask for the total of dollar fees at the very beginning, and should expect the lender to guarantee them through to closing.  If a lender says he can not do that.  He’s lying.  These fees do not change.  They’re administrative.  Rates and points, on the other hand, expose the lender to market risk.  Rates can go up and down pretty quickly, when they’re not locked in.

This is how people usually get squeezed.  They may take the lowest rate and this lender could charge $5k in lender fees while other lenders charge half that.

Many people will say, just ask for the APR.  That’s fine, but the APR has flexibility in what’s called the “Amount Financed“.  Not all fees make it into the amount financed, so there could be differences.  Also, comparing an APR for a 5 year balloon and a 30 year mortgage do no work.  When the fees are amortized over 30 years, the APR goes down.  If the closing costs are the same, the 30-year mortgage will have a lower APR.  Technically, it costs the same.

Definitions of common lending terms and other resources provided by The Mortgage Professor.

If you want to see a sample provided by the US Government, click here.  Notice how the base loan amount, total loan amount and amount financed can all be different.  The total loan  amount minus your base loan amount are the closing costs.  Some of these costs make it into the amount financed resulting in a higher APR.  These costs are typically the lenders fees.  Other fees are absent from here b/c TILA (Truth in Lending Act) says you can exclude them.  I think they’re fees that are paid to 3rd parties by the lender on behalf of the borrower.

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