Shopping for a home loan can be daunting. What makes this process confusing is each lender will present their initial rate, closing costs and pre-paid items in different ways and typically in different places. Add to this the forms required by regulation (Lenders Estimate, LE, and Closing Disclosure, CD) and getting to the bottom line is even more daunting.
However, you can cut to the bottom line using the following guidelines by using the “Rule Of Same.” Here are the steps you need to follow:
Rule Of Same, Outside The Regulatory Box
The Lenders Estimate can be confusing. Ask for a Closing Cost Summary that includes every fee and charge for Closing Costs and Pre-Paid items using the following guidelines:
- The same loan type (FHA, VA, Conventional, USDA, Jumbo, etc.)
- The same loan term
- The same interest rate
- The same loan balance
- The same lock period (usually 30 days)
- On the same day
(at this point you are literally comparing apples to apples)
Once you have every Closing Cost Summary from the lenders shopped, go over the itemization of fees and pre-paid charges for each. After locating the pre-paid charges you need to deduct them from the total charges. These pre-paid items are:
- 1st year homeowners insurance
- Homeowners insurance deposit
- Pre-paid property taxes
- Property tax deposit
- Interim (or Per Diem) interest. This can also be called Daily Interest. Once done, whatever lender has the lowest cost is the best deal for you.
Why does this work? Pre-paid charges are computed the same with every lender because they are based on the actual cost for each item, all third party charges.. Every escrow company computes pre-paid charges in the same way when closing your transaction, so these fees are the same for everyone. Other than the pre-paids, everything else is classified as a closing cost.
You may have read guidelines that say the APR is the best way to determine the best deal. Unfortunately, lenders have slight variations on how they compute APR so this calculation is not reliable.
The Rule Of Same will reliably get you to the best bottom line every time.
Rates and fees are determined by your credit score, down payment, or equity, loan type and other factors so always seek a quote from a reliable source. Understand, all loan terms, including the available rate are subject to change without notice until all qualifying criteria for a specific loan transaction have been established and your loan is locked. Consult your lender for details.)