Do You Really Know How Much You’re Paying?
You found it. The home of your dreams. The next chapter of your life. The place where you’ll create so many family memories, host holiday gatherings, and raise your children. That’s so exciting! And lucky for you, you have a family friend that’s a lender, a cousin that’s an insurance agent, and a neighbor that’s a home inspector. Your Realtor suggested you shop around a little bit to get the most for your money, but you know your connections wouldn’t steer you wrong. Would they?
I’ve seen this happen far too many times in my limited experience. I had buyers that were adamant on using a specific lender because they were related. This decision cost them an extra $2,000 in closing costs and tens of thousands of dollars over the course of their 30 year note because they were locked into a higher interest rate than if they would have shopped around. But they were family so it’s worth it. Right?!?
So what do you do? How do you shop around? Not all lenders, whether it be mortgage brokers, banks, and credit unions are created equal. Not all USDA loans, for example, are created equal. Each lender charges a different amount in lender fees such as origination costs, underwriting costs, credit applications, and the list can go on. Then there’s your interest rate. Different lenders use different investors, which can vary an interest rate dramatically. A slight increase in an interest rate will cost you hundreds of dollars a year.
Obtaining a mortgage is essentially buying money. A good lender should provide you with a breakdown of the fees you’ll be paying. The best way to compare how much you’re really paying is to look at the bottom lines: the total cost of your monthly payment and the amount you are expected to bring to closing. This is something most lenders can estimate in the early stages, which will guide you to picking the loan program that will get you the most for your money.
If you’re shopping for a mortgage, do your research. You can’t afford not to.