Home > Mortgages > How to Compare Lenders & Good Faith Estimates

All home buyers I have worked with wants to get a good deal. Good deals on the properties and good deals on the loans. In this article, I will share with you some basic tips on how to compare lenders to lenders.

Comparing lenders can be a tricky task. It will be easier if you break this task down into bite sizes.

The MOST IMPORTANT TAKE-AWAY: Do not only compare interest rates and total closing costs when you compare these lenders. Here are some tips:

Items 800: Lender charges

These are charges associated in acquiring the loans. When you receive an interest rate from a lender, always review the corresponding loan origination fee. The loan origination fee is a fee paid to the lender to originate the loan and hence, the interest rate.

As an example: A lender may quote you an interest rate of 5% and a 1% loan origination fee (based on the loan amount). Then, another lender may quote you a 5.125% interest rate but with no loan origination fee. Hence, just looking at the interest rate to determine which is a "cheaper" lender is NOT a good determining factor.

The Lender charges typically vary company to company. Some may charge you higher/ lower fees in appraisal and credit reports, underwriting/ processing fees.

Items 1100: Title Charges

Note about comparing the title charges:
Typically, there is no need to compare these charges unless you are shopping for a Title Company also. If a third-party title company has been determined by the buyers and sellers, the fees will be what they are. There are small variations in fees here in Texas, typically ranging a couple of hundred dollars, at most. These fees, as listed on your Good Faith Estimate is just an approximation.

To get the actual charges for Title company, contact the actual title company in which you will use as a third-party escrow/ settlement company.

Items 1200: Government Recording & Transfer Charges:

Again, these fees - typically charged during the closing process are fees that the escrow title office collects to file for lien and deed recordings. These fees are usually small and should not be used as a comparison factor between lenders.

Items 900: Interest Pre-paids and Insurance Premiums:

Depending on when you close on your property, the interest pre-paids are determined by the number of days and your interest rate. Some lenders just use a 15-day, while some use 1 day because these numbers are determined only by when you close.

For example: If you close on September 30th, you would only have 1-day of interest to pre-pay while if you close on September 15th, you will have 15-days to pre-pay.

Interest payments are paid in arrears. If you make your June payment, you make a principal payment for your June payment but the interests you pay is for ALL of MAY - not June.

Home Insurance Premiums - is also an estimate since your lender may not know what they may be. To obtain an accurate quote, contact your home insurance broker.

Items 1000: Reserves Deposited With Lender:

Reserves are property taxes and hazard insurance premiums.

Reserves are funds a lender requires you to put upfront if you choose for the bank to handle these escrows for you. The reserve requirements are determined by the lender. Some lenders require a 2-month deposit while others a 6-month deposit. These reserves may also be credit-score driven.

If you decide to handle property taxes and insurance premiums on your own, some lenders may charge you an escrow waiver fee. This is usually 0.25% of the loan amount.

More Last Notes:

When comparing lenders to lenders, be sure to compare rates at the same time during the day. Interest rates may fluctuate throughout the day. Hence, the quote you receive in the morning may not be accurate when you call the next lender for a rate quote at the end of the day. So, if you call a lender at 11am, call the other lenders at the same time. Otherwise, you would not be comparing apples to apples.

Read also, Two Halves Makes a Full Loan Approval to better understand the home mortgage loan approval process.

If you need some good recommendations for some of the high-octane, top producing mortgage lenders in the greater Frisco TX area, call me for a few names. Also, the information may be confusing. Please contact me if you want more detailed clarification. I'd be eager to hear from you.

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• Myths about Tax Assessments vs. Property Values

Sample of Good Faith Estimate