How To Get The Best Rate [Mortgage Loan Estimates Explained]

How To Get The Best Rate [Mortgage Loan Estimates Explained]

hello all you beautiful people i am mike for homebuyer we're the lender made for first time buyers and today i want to show you exactly how you can go about getting the best rate and terms on your mortgage loan the great thing about this is that even though we're the lender for first-time buyers this applies to anybody getting a mortgage so whether you're looking for a purchase a rate in term refinance drop your payments a cash out refinance to get some money in your pocket it doesn't matter this applies to everybody getting a mortgage and it all starts with your loan estimate i have here a copy of the loan estimate that everyone is sent regardless of your lender regardless of who you're using to get your loan you're gonna be sent a loan estimate in this format it's a three-page form with about 8700 different variables on it seems like anyway and we're going to drill down to two main variables to help you shop and compare quotes from lender to lender so first i want to start on page one we'll start right at the top and we'll do a quick overview of everything that is included on this loan estimate this is a fictitious loan estimate that i've pulled from the consumer financial protection bureau's website we're going to put a graphic up here so you can see exactly what i'm looking at but if you want to pull the actual document that we're basing all of this off of you can do it at cfpb.org at the top of the loan estimate is going to be some very general borrower information it'd be your name the address of the property you're looking to buy or looking to get a mortgage on and it has the the loan purpose your loan term how long it's going to take you to pay it back 15 20 30 years whatever that is and your loan type below that are your loan terms you have your loan amount your interest rate your monthly principal and interest a lot of this stuff is pretty self-explanatory so we'll move down to the projected payments projected payments of years one through seven and then years eight through thirty because it can vary a bit based on whether or not you need mortgage insurance on your loan this loan does look like it needs mortgage insurance it's a conventional loan so that mortgage insurance is going to apply for a scheduled seven years until it's able to drop off when it's paid down to 20 equity or 80 loan to value the mortgage insurance will drop off so you have your principal and interest payment of 761 and change your mortgage insurance of 82 bucks a month escrow amount of 206 that escrow amount is your monthly payment for taxes and homeowners insurance moving down from there is what those taxes and homeowners insurance are as well as your estimated closing costs and cash to close the first point i want to make the vast majority of this is estimated this is going to be a big theme when we actually drill down to the variables that you need to know in order to comparison shop effectively moving on to the second page is going to be a breakdown of all those closing costs in the top left is your loan costs being your origination charges which is the most important section on this entire form that's going to break down your total origination charges in bold there at the top as well as a breakdown of your loan origination points or your loan origination fees loan amount points could be referred to as different things this is basically a loan origination fee for charged points to get the rate that you're getting as well as an application fee underwriting fee and different things like that can be itemized here the main number you want to look at is just the total from mortgage bank to mortgage bank they may itemize those things differently some mortgage banks just put one blanket origination fee that encompasses everything and some itemize five six seven eight different things just for accounting purposes the only thing that matters is the total amount there because regardless of what they're called and regardless of the itemization dollar values and things like that it's all paying for the same thing the only difference is how the lender puts it in those fields down in section b you have services you cannot shop for those are services that are provided to you through the lender like an appraisal fee a credit report fee flood flood monitor there's a bunch of different stuff that can go in there but again this is very similar to the section above since you can't shop for them and the lender is providing those services to you just look at the number in bold there at the top of section b just the total number is all you really need to worry about services you can shop for like pest inspection fees survey fee title all of that stuff is good to know but again this is an estimate these are costs that can vary from lender to lender based on how they estimate these fees for you if this dollar amount varies from lender a to lender b to lender z depending on how many quotes that you're looking at don't worry if those dollar values vary slightly if there's a huge discrepancy it might be worth looking into or asking a question about but if they vary slightly don't worry they're just estimates when you actually close on the house all of those fees will be shored up and accurate across the board no matter what lender you close with once the once the values are real once you're actually ready to close they're all going to be the same very similar to your other costs here in the right hand column you have your taxes and other government fees which are going to be the same no matter what lender you go with you have your prepaids like your homeowners insurance premium that you have to pay up front for a few months to establish that escrow account you have your prepaid interest mortgage insurance premium again don't worry about the exact dollar amount in this section because these are only estimates and they're going to vary from lender to lender same as your initial escrow payment at closing for homeowners insurance mortgage insurance and property taxes your title fees in the other section labeled h there and then you have your total of other costs if you want to ignore everything that i just talked about and just look at the total of other costs that's fine when you're comparing quote to quote just make sure that number is close that's not something you're going to negotiate over it doesn't have to be an exact match because all the costs again are going to be the same no matter what lender you go with once you're actually ready to close on that loan let's not get caught up in estimated figures here it's good for you to know estimated figures are great so you can have a ballpark of how much money is actually going to take to buy that house when it pertains to closing costs and down payment all put together but when comparison shopping those estimates aren't that important total closing costs is going to be your d plus your i makes a whole lot of sense right it's your total other costs plus your total loan closing costs so your totals from both columns on this second page here calculating cash to close is going to be different for every transaction based on the deposit that you have or haven't put into escrow obviously that's not going to apply on a refinance only a purchase but this is going to show you how much total money you're going to come out of pocket for including your down payment when you're buying the home moving to the third page is some additional information here it's going to show the lender's name the loan officer's name the mortgage expert that you're working with just in case you ever have to contact them their information is right there and easy to access for you and then there's a comparison section so i like to stop this is a form created by the federal government for you for borrowers the whole idea was to be more transparent and give you all the information that you need and they even give you a section that you would think would be the best thing that you can use to comparison shop it's going to show you the costs five years in it's going to show you your annual percentage rate which is a calculation of your interest rate on your loan plus all the costs that are rolled into it in order to get the loan and it's going to show you your total interest percentage now i don't like to use these to comparison shop because a lot of this stuff is based on estimates if you must use one of these fields use the in five years field that's gonna be the most user friendly for you it's gonna show you the total you will have paid in principal interest mortgage insurance and loan costs that's the whole ball of wax and that 56 582 number that's the total paid in the first five years of the loan so it's a pretty good barometer the principal you will have paid off number obviously is going to vary based on your interest rate your monthly payments and the mortgage amount but the 56 582 is a pretty good number to look at if you just want a cold hard number to look at i don't think it's that effective because again as we already touched on a lot of that money especially as it pertains to loan costs are estimated now here's the prop i don't see the problem here's the issue with estimates here's the fact about estimates they can vary there are lenders out there who may be not the most borrower first will put it lenders who may purposely underestimate these costs especially as it pertains to taxes and insurances and mortgage insurance and things like that they could underestimate these costs making the quote that they provide to you look far better than it's actually going to be when it comes closing time there are other lenders that may overestimate these costs thinking we're just going to tell them it's going to be a little bit more than they think and that way when it comes time to closing the loan we get to kind of be the hero and provide some good news hey it's not going to cost quite as much both of those things are terrible for comparison shopping and they're even worse for your budgeting you want accurate figures at home buyer and plenty of other lenders they're going to estimate these as close to 100 accurate as possible but things will change here and there so the numbers can never be exact up front and the way that you can weed out the fray is to not worry about any of those estimates and when you comparison shop only concentrate on the top left section here on the loan estimate on page two of the loan estimate origination charges it doesn't matter what the origination charges are for it doesn't matter how they're itemized it doesn't matter what the lender says that they're charging you for the only thing that matters is the total amount of origination charges that you're paying and that's in section a and in section b the origination charges and the services you cannot shop for so if you look here you have about eighteen hundred dollars in origination charges and you have 672 in services you cannot shop for so we're looking at around about twenty five hundred dollars here this twenty five hundred dollars is what it's going to cost you in loan fees as it applies to the lender all of this other stuff the lender has no control over so if you're comparison shopping and looking at multiple quotes from lender to lender it doesn't make sense to compare those quotes on the things the lender has no control over right only the things the lender has control over in section a and b of the loan costs here it's just over twenty five hundred dollars that's how much the lender is charging you in order to give you a rate of back to page one right there at the top in the loan terms three point eight seven five percent now again this is just an example i don't know when you're watching this video or what the current market outlook is but if you want an accurate quote contact us down below or go to homebuyer.com fast for a quick and easy pre-approval in three minutes our pre-approvals are always fast simple and free and we can get you a pre-approval so you can start your house hunting along with an accurate as possible loan estimate so you can do some budgeting and planning but those are the two variables those are the only two variables you need to worry about the interest rate and the money that the lender is charging you for that interest rate now we took those 8 700 variables and we've drilled them down to two and it's easy for you to comparison shop now because if this lender is saying well you can have an interest rate of 3.875 and it's going to cost you 2500 in loan costs that makes it really easy to put next to another quote that might say we don't need twenty five hundred dollars in loan costs we need zero dollars in loan costs which is possible i've seen it happen but your interest rate might be 4.25 percent so it would be less out of pocket money up front in exchange for a higher interest rate and then you can weigh what's more important to you do you want to pay that little higher interest rate with a little higher monthly payment in order to save some money up front or would you like to pay some more money up front for a lower interest rate and a lower monthly payment that's your choice nobody else's the thing that makes these two variables powerful is by harnessing those and understanding them and just drilling down to those two variables of interest rate and loan costs is that it gives you complete control over your transaction and it gives you a little bit of power and decision making capabilities when you're working with your lender there's a lot of people who look at these three pages and think oh my gosh it's just so much information i'm just going to trust my mortgage expert i'm just going to trust my mortgage professional i'm going to go with whatever they advise me to go with which is fine but i believe that you should be the most educated and prepared homebuyer possible and by drilling down to these two variables you can be that and you can ask educated questions to your lender even if you're not going to comparison shop now at least you can say hey is there an option for me to come out of pocket for less money and take a higher interest rate instead or conversely can i pay a little more money out of pocket because you're an excellent saver and you got a bunch of cash sitting in the savings account you're ready to go for this purchase transaction and you're willing to part with some of that up front to get an even lower interest rate than you've already been quoted those are awesome options and any lender worth their assault will give you all the options that you want to hear so you can pick and choose and weigh them the way that you feel fit i'm going to quit talking your ear off you have the information that you need there's your quick overview of everything included on the loan estimate and the two variables that you need to know interest rate and loan costs in order to properly comparison shop or at least get some additional options from your lender if you like this video please let us know in the comment section down below and hit the subscribe button so you get all of our first-time homebuyer related content moving forward we'd really appreciate it and remember if you want to buy your first home click on the get pre-approved link down in the video description or go to homebuyer.com fast to get a quick simple and free pre-approval in just three minutes thanks for being with us i'm mike with homebuyer the lender made for first-time buyers happy home buying [Music] bye

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