How do I compare rates between lenders?

Nothing Will Cost You More Than Comparing Apples to Oranges.....

Frequently people claim they have found an unbelievably low Rate or low Fees some place, but when Rate and Fees are legitimately evaluated and compared, Apples to Apples, it generally becomes clear that the deal is not such a bargain.

To find the best deal it is important to compare apples to apples. To truly compare rates between lenders you need to do ALL of the following

• Find the loan product you want The first item to compare is the loan product itself. The loan product should match your needs. Make sure all the lenders you are comparing are clear on your needs. If a lender offers you a different product that is acceptable to you share the product information with the other lenders. Make sure the all the lenders are quoting you from an equal footing.

• Use a Constant Rate: Pick any currently competitive Rate and shop the exact same interest Rate (6.750% vs. 6.750% or 6.500% vs. 6.500%, etc.) for each lender. Then compare only the Loan Fees. This means the '800-series' amounts on your Good Faith Estimate. Comparing the same Rate is very important because Rate determines Fees. So the lesson is:
  
  Do not compare the Fees for one lender’s 6.500% rate against another lender’s Fees for their 6.625% rate. That would be Apples and Oranges! (If One lender comes in with a rate lower than the others go to the other lenders and tell them you want the lower rate and find out how much extra you will pay in fees to get that rate. Now you can truly compare)

• Use a Constant Date: Rates change daily with market conditions so it is important to make same-day comparisons, or even same-hour comparisons.  Comparing a rate you get today from one lender with the rate you got from another lender yesterday is almost certain to be different and is therefore Apples and Oranges.
  
  Do not be concerned with prepaid interest, insurance or taxes. These charges will be the same with every lender regardless of the amounts estimated on various Good Faith Estimates.

• Remember when shopping lenders you are only shopping for Rate and Loan Fees.
  Do not choose your lender based on their estimate of title fees, settlement fees or recording fees. Your local providers solely determine your title and settlement fees. Recording fees are determined by local government policy and will also be exactly the same with every lender when the loan closes, regardless of the amounts estimated on various Good Faith Estimates.

Why do Good Faith Estimates vary so much? Although most lenders have access to all the same loan programs they each have a different profit margin they need to obtain, many times they don't offer certain programs because they can't make any money with that program. They also all have different expenses as most large lenders have layers and layers of salaried management that must be paid out of the loan proceeds. Even scarier is that some mortgage providers mysteriously omit certain fees from the Good Faith Estimate in a attempt to seduce you into believing they offer the best rate and fee package. The problem is they succeed with this deception, often leaving you at the closing table with little choice but to close the loan and try to make things right after the event. Remember: Choose your lender based on rate and lender fees only, all other costs will be the same regardless of what the Good Faith Estimate says.

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Author of this article is Danny Garcia, this and other articles related to real estate investing and real estate investing mortgage loans can be found at www.InvestorMortgage.org

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