First-Time Home Buyer: Mortgage Question
November 6, 2015 11:26 AM Subscribe
My wife and I signed a contract for a home we love in Port Washington, New York. It's exciting and sort of terrifying.
We have a pre-approval letter from a bank, but we probably won't actually get our mortgage from the bank that issued the letter. It's the first time we've ever bought a house (-- it's the first time we've ever bought anything bigger than a breadbox --) and we need to get up-to-speed on how to compare offers from different banks and make this decision wisely, instead of by the seat of our pants.
Please point us to good resources online and offer us advice. Assume we know nothing (because we really don't know anything about this sort of thing). We plan to put down between 20 and 25 percent, and, of course, we'd like to get that lowest interest rate and lowest closing costs we can.
Thanks!
Response by poster: We've gotten a list of mortgage brokers from the agent, and are planning to meet with one of them tomorrow. Is contacting the three people she's recommended enough? Should we also be considering other banks, or online lenders?
posted by thursdaystoo at 11:52 AM on November 6, 2015
posted by thursdaystoo at 11:52 AM on November 6, 2015
Seconding a mortgage broker. Ask all your friends and colleagues if they've worked with a broker that they'd recommend.
posted by humboldt32 at 11:58 AM on November 6, 2015
posted by humboldt32 at 11:58 AM on November 6, 2015
Look at Bankrate.com for your area. It'll give you some baseline info. Beware the sponsored rates versus the real sourced rates.
Mortgage brokers may not be the best way to go, as they add in fees many times. But do check them out.
If you have good credit, and have a relationship with a good local bank (or large global bank like Chase or Citi or whatever), go to them and ask for a quote as well. If you have a credit union you belong to, they many times have better rates for members and local community.
You want a fixed rate. Do not go variable, unless you know what your cash flow is for the next 5-10 years and expect to refinance within 5 years. Rates are expected to finally tick up in the next year, so fixed rate now is the way to go.
I'm not a financial advisor, but I've had 2 homes, and financed or refinanced or gotten a home equity 5 times in the past 25 years.
Don't exhaust yourself, but don't limit it to the few folks you are handed. Large global banks have advantages, from reward programs and better client services for flexible payment options, and can many times give better rates.
posted by rich at 12:11 PM on November 6, 2015
Mortgage brokers may not be the best way to go, as they add in fees many times. But do check them out.
If you have good credit, and have a relationship with a good local bank (or large global bank like Chase or Citi or whatever), go to them and ask for a quote as well. If you have a credit union you belong to, they many times have better rates for members and local community.
You want a fixed rate. Do not go variable, unless you know what your cash flow is for the next 5-10 years and expect to refinance within 5 years. Rates are expected to finally tick up in the next year, so fixed rate now is the way to go.
I'm not a financial advisor, but I've had 2 homes, and financed or refinanced or gotten a home equity 5 times in the past 25 years.
Don't exhaust yourself, but don't limit it to the few folks you are handed. Large global banks have advantages, from reward programs and better client services for flexible payment options, and can many times give better rates.
posted by rich at 12:11 PM on November 6, 2015
Response by poster: Maybe I spoke too soon -- the real estate agent gave us the name of contacts at major banks (Wells Fargo, Chase, and Chase) who handle mortgages at the respective banks. This is an embarrassing question (as always): is that different than a mortgage broker?
posted by thursdaystoo at 12:24 PM on November 6, 2015
posted by thursdaystoo at 12:24 PM on November 6, 2015
I've dealt with mortgages many times. I'm a self-employed, independent contractor so going directly to banks, they wouldn't give me the time of day. Brokers work to find a way to get you a mortgage. The small amount you pay in broker fees is UTTERLY worth it. In my experience anyway.
posted by humboldt32 at 12:29 PM on November 6, 2015
posted by humboldt32 at 12:29 PM on November 6, 2015
As a former mortgage loan officer, I would like to suggest that you check with some local lenders in addition to the big banks. The locals will know the area and have a feel for it that may be missing at the Chase and Wells offices. In addition, your decision maker will be local instead of in New York, Chicago, or Los Angeles.
You might be able to find a listing of offered rates in your area, for a variety of lenders. These will list both fixed and adjustable, terms, and the amount of points charged. Points is a percentage of the loan amount that you pay up front, with higher points often tied to a lower rate. Most lenders will be in the same ballpark, as far as rates is concerned. You will need to decide if you want a fixed rate loan or an adjustable rate. Also, 15 vs. 30 years term.
posted by Midnight Skulker at 12:48 PM on November 6, 2015 [1 favorite]
You might be able to find a listing of offered rates in your area, for a variety of lenders. These will list both fixed and adjustable, terms, and the amount of points charged. Points is a percentage of the loan amount that you pay up front, with higher points often tied to a lower rate. Most lenders will be in the same ballpark, as far as rates is concerned. You will need to decide if you want a fixed rate loan or an adjustable rate. Also, 15 vs. 30 years term.
posted by Midnight Skulker at 12:48 PM on November 6, 2015 [1 favorite]
Honestly, I don't think you need to get a hundred "bids" here -- they're all looking at the same rates from the Fed, and are likely to have very small differences in what they can offer you. The only exception would be if you thought you were borderline to even qualify -- then what they're willing to take into account might differ a bit (b ut honestly, since the mortgage crash, not really all that much). If you talk to three people, you are probably in good shape to pick one and move on to the 7,000 other things you'll have to figure out in the process of buying and moving into a house! :)
posted by acm at 1:14 PM on November 6, 2015 [2 favorites]
posted by acm at 1:14 PM on November 6, 2015 [2 favorites]
Newsday has some pretty good info here, and runs a chart of local rates in their real estate section on Saturdays.
posted by Marky at 2:30 PM on November 6, 2015
posted by Marky at 2:30 PM on November 6, 2015
The Consumer Financial Protection Bureau has a website for first time home buyers to help shop for mortgages. Also has an interest rates lookup tool.
posted by farma at 3:53 PM on November 6, 2015
posted by farma at 3:53 PM on November 6, 2015
Firstly, congratulations on buying your first home! I really like Midnight Skulker's suggestion to check with local lenders. We've had experiences with Wells Fargo, Chase and Bank of America. By far, the absolute worst to deal with was Chase. (We're on the west coast and know two other families who have had similarly terrible service with Chase--in our case our credit score was dinged because Chase made a 25 cent billing error. And it took MONTHS to clear up what was their mistake.) When we were shopping for our last mortgage about five years ago, we both knew we wanted to use local lenders only. Ultimately, our credit union gave us very competitive rates and have kept the money in our community. That's a win-win!
Also, consider the tax consequences of paying points vs. a slightly higher rate.
posted by Gusaroo at 6:24 PM on November 6, 2015
Also, consider the tax consequences of paying points vs. a slightly higher rate.
posted by Gusaroo at 6:24 PM on November 6, 2015
Congrats and enjoy your home! A mortgage broker is different than, say, Chase, Wells Fargo, or Suntrust in that they represent many different sources of loans. I hesitate a bit in writing this because I am not sure "represent" is the right word, or whether they technically represent you to the loan sources or vice versa, but basically one broker can give you access to many loans from many sources while if you go to one bank/credit union/mortgage company, you only will be offered their small collection of loans.
posted by 2 cats in the yard at 9:31 AM on November 7, 2015
posted by 2 cats in the yard at 9:31 AM on November 7, 2015
My suggestion:
1. Decide on the basics so you can quickly compare options. You can always change the details once you get into the loan process.(Although sometimes you can save a little going with Bank A if you want to pay 2 points but Bank B if you want to pay 3 points so there is not just one cheapest bank but if you try for too many details you will go crazy.
So, decide
- value of home
- % down payment (say 20%, generally no change in interest rates to 25%)
- term - usually 30 years
2. Make a list of some places to contact. You can generally get the information you need on the phone or from their website without having to do a complicated application. (They will ask for zip code of the property, they might ask for adjusted gross income)
3. contact some places and get their current interest rates for the loan you want. there are four parts: interest rate, points (% of loan you pay upfront), fees (fixed $ you pay upfront) and APR (calculation adjusting interest factoring in points+fees). Include at least one mortgage broker and one local bank or credit union. If you start with a website like bankrate or quicken loans you will get an idea of what is available.
4. narrow it down to the top couple options and do some research to see if you want to do business with that lender. You can always come back here for a discussion of what to watch out and to hear horror stories.
- one big consideration will be how easy it is to deal with them in the process of getting the loan. Some lenders make their own loans. Some specialize in creating mortgages and reselling them. Less common now but I had refinanced our mortgage four different times using a mortgage broker to go to a lender who resold and each time they resold it right back to Wells Fargo - our local bank. No way I could get that low a rate different from the bank
- Another thing is that the best place to get a mortgage really varies with the local market. For us, the national on-line listings have never, ever been as good as the local prices. For a number of years, I always to did better using a broker. More recently (maybe due to the mortgage crisis?) I've done better going to big banks. That's why you want to check out a couple different kinds of options.
posted by metahawk at 4:25 PM on November 7, 2015
1. Decide on the basics so you can quickly compare options. You can always change the details once you get into the loan process.(Although sometimes you can save a little going with Bank A if you want to pay 2 points but Bank B if you want to pay 3 points so there is not just one cheapest bank but if you try for too many details you will go crazy.
So, decide
- value of home
- % down payment (say 20%, generally no change in interest rates to 25%)
- term - usually 30 years
2. Make a list of some places to contact. You can generally get the information you need on the phone or from their website without having to do a complicated application. (They will ask for zip code of the property, they might ask for adjusted gross income)
3. contact some places and get their current interest rates for the loan you want. there are four parts: interest rate, points (% of loan you pay upfront), fees (fixed $ you pay upfront) and APR (calculation adjusting interest factoring in points+fees). Include at least one mortgage broker and one local bank or credit union. If you start with a website like bankrate or quicken loans you will get an idea of what is available.
4. narrow it down to the top couple options and do some research to see if you want to do business with that lender. You can always come back here for a discussion of what to watch out and to hear horror stories.
- one big consideration will be how easy it is to deal with them in the process of getting the loan. Some lenders make their own loans. Some specialize in creating mortgages and reselling them. Less common now but I had refinanced our mortgage four different times using a mortgage broker to go to a lender who resold and each time they resold it right back to Wells Fargo - our local bank. No way I could get that low a rate different from the bank
- Another thing is that the best place to get a mortgage really varies with the local market. For us, the national on-line listings have never, ever been as good as the local prices. For a number of years, I always to did better using a broker. More recently (maybe due to the mortgage crisis?) I've done better going to big banks. That's why you want to check out a couple different kinds of options.
posted by metahawk at 4:25 PM on November 7, 2015
ps. in step one, you also need to pick fixed vs. adjustable vs interest only. if you don't know, check out the on-line rates to get a sense of the choices and do the math to figure out what works for you. I have a very strong preference for fixed - I've paid as high as 14% for a mortgage. If rates drop, I can always refinance but if they go up (which seems likely over 30 years from the current lows) I don't want to take the chance of rates going back that high. If you are going with adjustable, make sure you note (1) if there is an initial fixed term, how long it lasts, (2) how much it can go up at one time (3)how much it go in total (4) what the base used for calculating. Writing that down for each option will help you compare apples to apples as you collect more information.
posted by metahawk at 4:32 PM on November 7, 2015
posted by metahawk at 4:32 PM on November 7, 2015
This thread is closed to new comments.
posted by galvanized unicorn at 11:48 AM on November 6, 2015