Lenders will also have pricing adjustments as part of their wholesale price sheets. These are called “hits” or “add-ons” in the industry. Sometimes there are ‘hits’ for a lower credit score, or if it is non-owner occupied etc. These are ‘add-on’ (increases) to the price of the loan.
Likewise, the lender may give certain ‘credits’ on the pricing for positive aspects of the loan. For example if you have a credit score above 740 than the lender may offer an additional yield spread premium of .125 to .25 points. This can help lower your overall fees. If you choose not to have impounds then the lender will usually add .25 points to the cost etc. (Impounds are where the lender pro-rates your annual property taxes and your homeowner’s insurance and collects a portion of them for you each month and then pays them for you when the premiums are due.)
Hopefully you now have a basic understanding of how loan pricing works. So how do you use that to your advantage?
Now it is time to shop.
1-A good start is your bank. Have them give you a quote. This will be in the form of a fee worksheet called an “Estimated Fees Worksheet”. This is a basic quote and is not based on them reviewing any of your financial information. You don’t need a credit report or anything yet. It is just a line item breakdown of costs and rate.
2-You should also get one of these from any broker you speak to as well. Again, have them give you a quote. As a reminder, a broker can shop many, many different wholesale lenders for you. In my experience it is NOT easier, or cheaper or a better deal or faster to go to a regular bank. Mortgage brokers deal directly with the wholesale lenders and shop for programs very specific to your needs, whereas a bank may or may not have a program best suited to your particular situation. Again, you should shop and compare. Be sure to get your questions answered so that you really understand the loan you may be looking at.
NOTE: Make sure you are getting quotes on the same type of loan from banks and brokers, so you can compare apples to apples (30 year fixed no point no fee for example). Again, your loan scenario is unique to you (credit score, assets, income, what you are trying to accomplish etc.) and may or may not be the same rate as you have heard advertised. (For example, the rate for a 10% down purchase loan and the rate for a 20% down purchase loan may be different and require different percentages of assets, income etc. to be in place to get that particular loan rate.)
Now,an Estimated Fees Worksheet is NOT the same as a “Good Faith Estimate” or “GFE”. A GFE is only required to be issued by a lender after they have received your financial information such as, name, address, income and credit. Then they are required by law issue one within 3 days of receiving such information. There is also another document called a “Truth in Lending Disclosure”. This is a document that gives you the amount financed and what the cost of credit is on your loan. This is generally issued with the GFE.
You don’t need those yet. You get those after you choose a lender to work with. The Estimated Worksheet has all the numbers you need. These numbers are entered into the lender’s loan application software and at the correct time these same numbers are used to auto populate the GFE and Truth in Lending disclosures.
So when you approach a lender the first thing you ask for is an Estimated Fees Worksheet along with a rate quote. You don’t need to give them your financial information or pull credit at this stage. This is just a “what if” type of document. Get a sheet for a “par” loan and get a sheet for a “no point no fee“ loan. A “par” loan is when the broker’s wholesale cost is zero. So you would pay all points and fees. (Look at the table in part 2 of this blog at the 3.625 rate on a 30 day lock.)
They may ask you if your credit is good and may ask how much you plan on putting down on a purchase or if you are refinancing, how much equity you think you have. This is to help them adjust for any “hits” on their wholesale price sheets.
So for shopping purposes only tell them your score is above 740. If you know your recent score go ahead and tell them what that number is. Again, be sure you tell each lender or broker the same information so that when you compare you are looking at apples to apples. Different data can make a huge difference in your rates and does not give you the data you need.
Once you get 2 or 3 Estimated Fee Sheets you are now ready to get down to business and compare. See part 4 for how to get a good comparison.