First of all, rates change daily (even twice on some days), and by the time you see them they are 4-5 days old and not reflective of today’s rate.  Secondly, unless that rate can be “locked in” now and guaranteed, it is very inaccurate and only a general indicator.  Thirdly, rates depend highly on your situation (i.e., credit history, self-employed, loan-to-value, etc.) and all factors need to be considered before a rate and cost is determined.  Another reason is that sometimes rates quoted by companies are generally lower than we can get at wholesale which means that they would have to pay you to close your loan.  Not likely.

So how do you choose a company?

First, you do need to shop around usually by phone not only for rates but to find out how this company will handle your loan and the benefits they offer you.  Rates will be a way of talking to these companies and gathering the necessary information to select the right company for you.  A mortgage is a large investment and requires a company that can handle the process smoothly, accurately, and in a timely manner.  Convenience, ease, and responsiveness to processing your loan are factors that do not show up in a rate.  Selecting a company based only on a low rate may cost you more in aggravation and frustration if they don’t handle your loan properly.  Not to mention possibly costing you money if you don’t close your loan on time.

So you’ll call a mortgage company or lender and ask the following questions:

1.      What is your rate for a 30 year fixed loan for a loan amount, say for example $200,000?  Then you wait for the response.  If they quote you a rate without asking any questions then I would recommend that you go to the next company!  Why this harsh response?  Because they’ve just told you that they just quote rates regardless of your situation.  Remember many things affect the rate.  How do they know which rate you could get without asking any questions?

The questions should be related to what you want to accomplish with the loan, credit history, self-employed, income, loan-to-value, and others that are specific to your situation.

2.      What are the total closing costs including appraisal, credit, application fees, title, escrow, and lender fees?  Are any of these fees up front?  The only up-front ones should be the credit and appraisal fee.  Banks sometimes charge an application fee instead of an appraisal fee.  It usually is more than the appraisal and credit fee.

3.      Ask the broker to send you the information you’ve talked about.  Note when you talked to them and see how long it takes for the information to get to you.  If it’s more than a few days I would recommend that you go to the next company.  They have shown you they are not responsive.  If they aren’t now, how will they be when it counts and you have to close your loan on time?

If the information is received on time make sure that it reflects what you talked about.  Is it accurate?  What are the benefits they are offering you?  Do they tell you?

Compare a bank’s rate to the mortgage companies to see what the differences are in fees, interest rate, and loan conditions such as prepayment penalty, negative amortization, and adjustment periods.

BANK OR MORTGAGE COMPANY?  There are some advantages to using a mortgage company or broker:

1.      They usually have lower rates because they are not insuring the loan themselves.

2.      Brokers don’t get paid until your loan closes.  They have incentive to work hard on your loan.  Loan officers at banks usually don’t have as much incentive.

3.      If the loan has a problem or is turned down with one lender, the broker can change lenders without losing any time.  With the bank, if it’s turned down, you’ll have to start all over with another company, and you may not have enough time.

4.      A broker has a greater selection of lenders so you should get  better pricing on any loan program.  The bank has a limited selection and tries to fit you to their program – not the other way around.

Fixed-rate mortgages Fixed rate mortgages are mortgages where the interest rate stays the same for the entire term of the loan. The advantage to a fixed rate mortgage is that if you lock a relatively low rate, your payment won’t go up when rates do.

Adjustable-Rate Mortgages With an adjustable rate mortgage, the rate of the loan can change throughout the term of the loan. The rate of the loan is based on adding points to a fixed base.

Hybrid loans A hybrid loan combines a fixed period along with an adjustable component. Usually these loans are fixed for a period of time and then the loan becomes adjustable where it is dependant on current rates.

FHA real estate home loans An FHA loan is a loan in the United States that is insured by the Federal Housing Administration.