Choosing a Mortgage? Rates Are Not the Only Factor

If you think low mortgage rates are the single most important factor when choosing a home loan, you're probably right. But they certainly aren't the only one. Not only do you need to find the best mortgage quotes, but you also need to find a lender that can close the deal on time and at the interest rate you expect.

Missing a Closing Can Be Costly

When buying a home, your lender (and you) will have to hit some important targets. Your seller will want to know that you have credit approval (not merely a pre-qualification) within days (or at most, weeks) of opening escrow. That means that as long as the property is acceptable, you can close on your home loan and complete your purchase. The next target is completing the property appraisal and approving the property. And the final one is getting loan documents prepared and funding the loan.

Missing any of those dates could put you out of contract. Being out of contract can mean having to renegotiate your purchase, losing your earnest money, being assessed penalties or having the home sold to someone else. In hot markets, your seller may very well have a backup offer that's higher than yours. Being out of contract puts you at the mercy of the seller -- an uncomfortable and possibly expensive position.

Blowing a Rate Lock Is Potentially Pricy

The second way that a sloppy lender can cost you money is by failing to close the loan before your interest rate lock expires. Say, for example, that you lock a 4.15 rate for 30 days, expecting that to be a reasonable time in which to close. Then, imagine that your underwriter requests a pile of additional paperwork and is then too busy to review it before your lock expires. What if rates are now 4.5 percent? To get your old 4.15 percent rate will now cost you about two additional points, or $4,000 on a $200,000 mortgage! Some lenders are a lot better at closing on time than others, and some have a reputation for being very, very slow. With a slow lender, there's a good chance you'll be paying a higher rate than expected.

How Accurate Is the Mortgage Rate Quote?

When comparing mortgage quotes, you might get a Good Faith Estimate (GFE), or you might be offered a "scenario" or "worksheet." Either form might be okay, but only a GFE requires lenders to honor the fees that are disclosed.

Even if you only care abut mortgage rates and nothing else. you really can't choose your lender based on published mortgage rates unless you KNOW that those rates apply to you -- meaning you're buying a primary residence with at least 20 percent down and have a FICO of 760 or higher, that the home is a conventionally-built single family residence and you're ready to lock in your rate RIGHT NOW. And even then, you'll see a tiny disclosure on all of these ads that renders them next to useless:

Rates and programs subject to change without notice.

To get a reliable mortgage quote, you have to provide lenders with information about your down payment, credit, and the property. LendingTree allows you to provide this information to lenders and get competing real quotes for free.

How to Choose a Good Mortgage Lender

You'll want a mortgage lender that offers a good experience and keeps its promises, and an agent who communicates in your preferred style (email? phone? text?) and on your terms. Larger lenders tend to have whizzier websites and online services, may invest more in staff training and sometimes offer better payment options. Small ones may provide more personalized service, with face-to-face meetings with people who frequently have the discretion to make decisions independently of their computers.

Customer Service

Whichever size lender you prefer, take note of the customer service you receive on your first contact. Was the person you spoke to helpful and well-informed? Did you feel he or she treated you as a real person rather than an anonymous business prospect? Were you left on hold for long periods? A company that can't master these key initial contacts may be even more hopeless once you've signed on the dotted line.

Lender Ratings

Research lenders as thoroughly as you can. Check with the Better Business Bureau and verify that they're licensed with the state in which the property is located. It's not hard to do online -- just search for "mortgage lender license in [your state here]." Finally, be sure to check out LendingTree's Ratings and Reviews. You'll see what other borrowers like you have to say about the lender's customer service once their mortgage is in process.

But Rates Are Still Important!

Of course, your focus should always be on finding the best overall deal. And getting the lowest mortgage rates is probably your No. 1 consideration. However, you also need to make sure your closing costs are competitive. The closing costs are listed in the Good Faith Estimate and are incorporated into the loan's annual percentage rate, or APR, which is disclosed on the Truth-in-Lending form.

Customer service may come third after those considerations, but it can be unwise and expensive to ignore it.

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