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How to Mortgage Shop

How to Mortgage Shop. By Jon Boyd, Broker The 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 lenders 3. Identify Fees that ARE NOT LENDER CONTROLLED

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How to Mortgage Shop

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  1. How to Mortgage Shop By Jon Boyd, Broker The Home Buyer’s Agent of Ann Arbor, Inc. http://hbaaa.com

  2. 4 Basic Steps • 1. Choose loan type & prepare to gather data • 2. Gather quotes from lenders • 3. Identify Fees that ARE NOT LENDER CONTROLLED • 4. Calculate the “value differential” to make a decision

  3. 1. Choosing Loan Type • 1. Buyer’s Credit • 2. Desired down payment • 3. Idea of what rates will do in future • 4. How long in the home • 5. Level of risk buyer is comfortable with • 6. Monthly payment range

  4. 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/m • 1 pt., 5.75%, $100,000, $584/m

  5. 4 Things Must Be Held Constant • 1. Type of loan including credit profile • 2. Amount of loan • 3. Lock period • 4. Day, and ideally the time of the quote

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

  7. 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

  8. 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?”

  9. 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

  10. 3. Identify... • 2 items that we feel are OK for the buyer to pay for: ~$50 credit report & $275 appraisal • 900 items • 1000 items • 1100 items • 1200 items • 1300 items

  11. 4. Calculate • 1. What is left is junk fees • 2. Sometimes lenders will move things around, but it becomes very clear at this point • 3. Add up the junk fees • 4. Add up the P&I for 5 years • 5. Add junk & P&I for each lender

  12. Results of a comparison • Lender #1 $66,266 • Lender #2 $71,089 • Lender #3 $64,751 • Lender #4 $66,996 • Lender #5 $67,799 • From 2 to 3 $6,338 Value differential • #3 compared to average, $3,036

  13. 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 irrelevant • 4. It is easy for a mortgage originator to mislead home buyers and agents with a GFE

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