How to Mortgage Shop

By Jon Boyd, BrokerThe Home Buyer’s Agent of Ann

Arbor, Inc. http://hbaaa.com

4 Basic Steps

1. Choose loan type & prepare to gather data

2. Gather quotes from lenders3. Identify Fees that ARE NOT

LENDER CONTROLLED4. Calculate the “value differential”

to make a decision

1. Choosing Loan Type

1. Buyer’s Credit2. Desired down payment3. Idea of what rates will do in future4. How long in the home5. Level of risk buyer is comfortable

with6. Monthly payment range

Rational & Limitation

This method is valid for loans that are fixed for at least five years

The market typically is set for a lender break even at ~60 payment for points charged

0 pts, 6%, $100,000, $600/m1 pt., 5.75%, $100,000, $584/m

4 Things Must Be Held Constant

1. Type of loan including credit profile

2. Amount of loan3. Lock period4. Day, and ideally the time of the

quote

IMPORTANT!

When you contact the lender ask for the rate they can lock you in with Right Now!

2. Gathering Quotes

- Need a general idea about paying points, i.e. “about zero points”

- Lenders appreciate you knowing what you are after, but they may be offended by you asking about their specific fees

Most lenders don’t like to be shopped

Example Request:

“Buyer’s credit score is 725, I’m looking for a 30 day lock on a $180,000 loan with zero points. Can you tell me what your rate is to lock today and what your costs are like?”

Pay attention & write it down

It may be easier for you to use the line numbers on a HUD-1

Once you do this a couple of times you will get an idea about which lenders charge which fees

3. Identify...

2 items that we feel are OK for the buyer to pay for: ~$50 credit report & $275 appraisal

900 items1000 items1100 items1200 items1300 items

4. Calculate

1. What is left is junk fees2. Sometimes lenders will move

things around, but it becomes very clear at this point

3. Add up the junk fees4. Add up the P&I for 5 years5. Add junk & P&I for each lender

Results of a comparison

Lender #1 $66,266Lender #2 $71,089Lender #3 $64,751Lender #4 $66,996Lender #5 $67,799From 2 to 3 $6,338 Value differential#3 compared to average, $3,036

Final notes:

1. We sometimes use a spreadsheet to automate the calculations

2. E-Trade Mortgage “Fair Compare”3. If you mortgage shop much, the

GFE form becomes irrelevant4. It is easy for a mortgage originator

to mislead home buyers and agents with a GFE