Tips for Borrowers Shopping for a Loan

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How and when do you shop for a lender?  And, what are all the fees?  It's really easier than it looks.

First off, get pre-approved with one lender to start with and once you are under contract to purchase a property then get two other estimates (Good Faith Estimates or GFE's).  Make sure the get the GFE's on the same day, around the same time of day because rates fluctuate throughout the day and compare apples to apples.  Meaning make sure all three GFE's are based on the same terms, for example a 30 year fixed rate, 20% downpayment and borrowing $200,000.  It doesn't do you any good if one lender is providing a GFE to you based on $250,000 loan on an ARM (Adjustable Rate Mortgage) and another lender uses $200,000 on a 15 year fixed rate. 

Second, ignore most of the numbers on the GFE.  Huh??  That's right, most of the numbers stated on the GFE are going to be the same no matter which lender you use, so don't let them confuse you because one lender has title fees $500 higher than the next.   

Here's what numbers you need to focus on.  Below this text is a sample GFE to show the location of the items listed below.

1. Verify that the loan amount and Term (i.e. 360 months) at the top of the page (listed directly above the 800 line section) is correct.

2.  Add up all closing fees:

   a) 800 Section - Add up all the fees in the 800 section, even numbers listed as negatives (all that means is  they are collecting that fee from you prior to closing). 

   b) 1100 Section - Add the Document Preparation Fee (typically line 1105).  

   c) Look at the very last section (Total Estimated Funds Needed to Close - left side) of the GFE just above the signature line for any 2^nd Mortgage Closing Costs.  If there is amount in that section, add it as well.

3. Look at the very last section (Total Estimated Monthly Payment - right side) of the GFE just above the signature line for the total Principal and Interest (P & I) payment, Other Financing (P & I) and Mortgage Insurance.  Don't worry about what the lender lists for Hazard Insurance, Real Estate Taxes or Homeowner Association Dues since they will be the same no matter the lender you select.

4. If a lender has higher closing fees AND a higher P & I, throw the GFE out.  There is no use going any further with that lender.

5.  Last, but not least, what do you do if one lender has higher closing fees, but a lower monthly payment?  Simply use our formula:

Higher P & I - Lower P & I = x

Higher Closing Costs - Lower Closing Costs = y

y/x = number of months until you make up for higher closing fees

So, what does that mean?  Let's use a real life example,

Lender A is charging $3000 in closing fees and a P & I payment of $2425.

Lender B is charges $1500 in closing fees and a P & I payment of $2500.

P & I: $2500 - $2425 = $75

Closing Costs: $3000 - $1500 = $1500

$1500 / $75 = 20 months

That said, if you are going to keep the property longer than 20 months, then Lender A is the least expensive option for the long haul.  The flip side of this scenario is when you are keeping properties short term, i.e. less than 16 months, typically you want the lowest upfront closing fees in exchange for a little bit higher monthly payment. 

Call or email me today and I'll tell you what properties and areas are on my "Deal of the Week" in your desired area.  Also, check out our website so you can personally search the MLS like a REALTOR® or sign up for our daily automatic property searches.

Happy House Hunting!  Jessica Bruehl   512-263-6737 or info@jkbrealty.com