Online home mortgage quotes are very similar to the quotes given by mortgage brokers in “the real world,” except lower. With the reduced cost due to a simplified application process and reduce overhead for office space and personnel, online mortgage lenders can offer financing with no fees or lower interest rates.
Looking At Fees
Fees are the hidden costs of loans. Mortgage brokers are paid in fees or points on the mortgage loan. The advantage of a mortgage broker is that they find the best mortgage rates for you. So even with their fee added into the loan, you still can expect to save money.
Online mortgage brokers have automated much of the mortgage loan process, reducing costs. As a way to stay competitive, many of these lenders have eliminated or reduced their fees.
Interest Rate Quotes
Both traditional and online mortgage brokers can give you an instant generic interest rate quote to narrow your choices from a mortgage lender. However, to get a true quote, you will need to provide detailed personal and financial information. With a traditional mortgage broker, the process can take a couple of days to process the information and meet with the mortgage broker to review rates.
Online mortgage lenders connected all their databases to be able to provide you with a near instant quote. Occasionally there can be delays in processing your information if you have recently moved or changed names or jobs.
Difference Is Sales Styles
Online and traditional mortgage brokers differ in their sales style when relaying quotes to you. A traditional mortgage broker will use sales tactics to pressure you to complete the mortgage application right there. Many people feel the need to make a quick decision rather than taking the time to process the information.
Online mortgage lenders offer a different approach; they provided the information, then wait for you to take the next step. After requesting a mortgage quote, you will receive rates either through the website or through email that you can review at your own pace. You can choose to apply with a specific mortgage lender, or decide that none of them are best for you.
To view our list of recommended mortgage lenders online, visit this page:
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Lenders Online
The Internet can be an excellent tool for researching mortgage lenders and loan offers. There are a number of problems that arise when using even the most “reputable” sites to request quotes. Here are three tips to help you avoid being taken advantage of when shopping for a mortgage online.
I. Read The Fine Print
The majority of mortgage sites you find on the Internet have absolutely nothing to do with mortgage loans. These sites simply collect your contact information and sell it to mortgage lenders and brokers. You’ve even seen these companies advertising on television on how they get lenders to compete for your business. The problem with using a mortgage site like this is that you could find a hefty fee on your Good Faith Estimate for filling out that form.
II. Avoid Computerized Loan Origination Fees
Mortgage sites on the web that are in the lead generation business are compensated for collecting information including your name, address, phone number, credit status, and mortgage amount. In most cases, these websites are required to disclose information about their fees in the licenses and disclosure statements found on the site. Take a look at the licenses and disclosure statement found on one popular “Lending” site that advertises on television and you’ll find that filling out the form will cost you as much as $1,300!
III. Do Your Homework First
There’s plenty of bad advice and sales motivated mortgage articles posted on every corner of the Internet. Taking the time to learn how mortgage lenders make their money will help you avoid many mistakes homeowners make with their mortgage loans. You can learn more about finding the perfect mortgage online while avoiding costly mistakes with a free mortgage tutorial.
Sometimes we do things out of habit and/or tradition, even when a better, quicker, or more convenient way exists. We’ve been so accustomed to chasing mortgage brokers and jumping through all kinds of hoops. Then on top of all that, you usually will have to wait a day or two for the mortgage brokers response. Its time to break tradition and take control of the situation.
You can take advantage of the Internet and use it to compare mortgage quotes. Lower quotes can often be obtained online. One reason is simply because online mortgage brokers don’t have the same overhead and if they do, the Internet allows them to steam line their operations and still create an advantage for them over other brokers who don’t utilize the Internet.
When dealing with online mortgage quotes, be sure you’re comparing apples to apples and oranges to oranges. When you get a quote and one payment seems to be far below the others, look for reasons why. Is the lowest quote a mortgage with a 15yr term and the others are 30yrs? Did the low quote have you putting down a larger down payment? One area to be sure to carefully examine is the interest rate. You could be quoted an interest rate that someone with A+ credit would be able to obtain. Also be aware of the many creative financing products that are available now.
One such product is the ARM, Adjustable Rate Mortgage. The mortgage has a great introductory rate that makes it very appealing to potential home owners. The problem is that your payment can increase drastically. Usually at predetermined times in the future, your rate is re-adjusted. If interest rates move up your payment will increase also. This and other products (along with questionable lenders) have been sited as the huge increase of recent foreclosed homes. Knowledge is your best weapon.
Getting a good mortgage rate and terms at a reasonable cost can be tricky for the untrained consumer. I have been involved in the financing of real estate on two fronts, first as an appraiser who has appraised for lenders on over one 1000 mortgage loans and second as an investor who has applied for and refinanced over 100 loans in the past 15 years, so let me share some tips on how to get a good mortgage at the lowest possible cost. Visit my blog RealEstateInvestorsLife.com for more mortgage tips.
1. Know your credit report. One of the first things to do before considering a home purchase is to get a current copy of your credit report, and scrutinize it for errors. If you’re applying for a no-documentation loan, for example, the credit report can be the most important piece of information available to your lender. Errors can be completely erased, along with out-of-date information that might weaken your credit score, but it takes time. Begin working on this project well in advance of applying for any mortgage loan. This way, reporting agencies have time to update your data.
2. Shop around. Get quotes from 3 lenders. You may be able to save yourself hundreds or even thousands of dollars by avoiding mortgages with high rates and/or high fees.
3. Always check the 10 year bond rate. All mortgage rates are connected to the 10 year bond rate. This rate can be found at any finance or stock website, such as Yahoo Finance, Google Finance, Ameritrade, Fidelity and many more. For example, if your mortgage broker quotes you 6% on a 30 year fixed today and tomorrow the 10 year bond rate dropps by .025 basis points you can be sure that the rate of 6% which you received yesterday has also dropped. But your mortgage broker or lender will not call you. Why should they? They make more money in selling you the higher 6% rate. You will have to call yourself and notify your broker that the 10 year bond rate has dropped and you expect your 6% rate to also drop accordingly to probably 5.75%-5.875%. Trust me once you make this kind of call, your mortgage broker will know that you are on top of the game.
4. Try to avoid and eliminate the middle men, “mortgage brokers, loan broker” and go directly to direct lenders or banks. Private loan brokers rarely are able to compete with direct lenders or banks on rates and they often charge excessive 3rd party closing costs or “junk fees’, such as excessive processing fees, application fees, warehousing fees, documentation preparation fees and so forth. By going to a direct lender or a bank you can almost be certain that the closing costs related to your loan are always valid and no junk fees are applied.
5. Always haggle. A mortgage is just another consumer product. A few clever words can get a sweeter deal. Make your demands know upfront. Let them know that you would like to have your processing fees, which usually is about $330-$500 waived. Know your markets interest rate and try to pay the least amount of points. Try to pay less than 1 point on loan between $200,000-$1,000,000. On loans greater than 200,000 it is not uncommon to pay .075% points with no rebate at the back end. What is a rebate you ask? Mortgage brokers get an upfront fee called “points or Origination Fee” which is a percentage of your loan, but what most do not know is that mortgage brokers also get a back end fee, called a “rebate or yield spread” which is their markup over the par rate that they get from the source investor or lender, Assuming a 2 point markup, for example, the broker would quote 1 points on an 6.5% loan. If the current lender based par rate is 6% then you just paid the mortgage broker 1.5% total for your loan. The borrower pays for the rebate over time through the higher interest rate. By law in most states, such as California the mortgage broker must disclose the back end rebate fee to the consumer on the closing paperwork sent to the borrower, so check to see how much rebate or Yield Spread the broker is charging. The ideal situation would be 0 rebate and just negotiate on upfront points, this way you are certain you will receive the best available rate at the most reasonable cost, nothing is hidden or unknown.
6. Make sure your selected loan does not have a pre-payment penalty. Many people get what they consider a great loan and are not even aware that they have a prepayment penalty of 3-5 years. They find out when they try to refinance or sell off their existing loan that they would need to pay 6 months interest or more as a prepayment penalty. Lenders and Mortgage brokers also benefit in giving you a pre-payment penalty since they have you tied down with their loan product for 2-5 years not to mention higher compensation for them in a form of rebates if they can persuade you to get a loan with a pre-payment penalty. Do not fall for it. Never get a loan with a prepayment penalty.
7. Have the lender or broker write down all the costs associated with the loan, they usually are obligated by law to send you a “Good Faith Estimate” within 3 days of the initial loan application. All your fees have to be listed on the Good Faith Estimate, ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
Remember when buying or refinancing Real Estate, shop around to compare costs and terms, and to negotiate for the best deal. Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you’ll want to check your newspaper often when shopping for a home loan. But the newspaper does not list the fees, so be sure to ask the lenders about them.
Mortgage Quotes
When you apply for a mortgage loan you should receive a “Good Faith Estimate” within 3 days of your loan application. This good faith estimate will contain an estimate, but not a guarantee, or your mortgage rate and closing costs.
These are standard forms that you should receive from different lenders. This makes it easier to compare the costs between different lenders.
Comparing Offers
When you compare offer from different lenders you should compare offers for the same type of loan. You can compare a 30 year fixed loan offer from one lender with a 30 year fixed loan from another lender.
You should also try to compare offers made from different lenders made around the same time, if not the same day. This is because interest rates can change every day. A lender may offer a better interest rate only because the day they are making the offer interest rates may have temporarily dipped.
Is The Offer Real?
It is easy for a lender to give you a “lowball” offer. They can leave out many costs in the good faith estimate to make their offer look better than a competitor’s offer.
There are many third party costs on the good faith estimate that usually cannot be avoided. These costs usually include insurance, escrow, title charges, legal fees, taxes, and other fees.
If you get a “no closing cost” option you usually avoid paying the closing costs up front in exchange for a higher interest rate than you would have otherwise received.
Comparing Offers
If a quote is too high you may want to avoid that lender or mortgage broker. There are some lenders and brokers who routinely overcharge their customers. Do not let pressure to close a loan quickly get you stuck with a bad loan.
There are many lenders and brokers out there. You can shop around as much as you like. At most you will need to pay for your credit reports. This is usually less than $50.