Home Mortgage Questions (Process and Timing)

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RJ1982
Posts: 56
Joined: Wed Jun 26, 2013 9:58 am

Home Mortgage Questions (Process and Timing)

Post by RJ1982 »

Hi fellow Bogleheads-

My fiance and I are looking to purchase a home in the next three months or so. I am currently in the process of researching mortgage lenders and I have some basic questions that I am having difficulty finding through online searches.

1) How does one go about obtaining a pre-approval letter? Is this as simple as filling out the “Apply Now” links that are ubiquitous on mortgage lender websites?

2) If I apply to multiple mortgage lenders (using the “Apply Now” link I noted above), am I authorizing each of those lenders to pull my credit score? If the answer is ‘yes’ is it important that I submit these applications on the same day, so that my credit score doesn’t go down from the frequent pulls?

3) With all of the different mortgage options, is there a way to easily compare mortgage rates “apples-to-apples? For example, I would anticipate asking for a quote that itemizes all closing costs and provides the rate for a conventional 15 year (and 30 year) mortgage with no points? Is this a sufficiently detailed request, or is there special nomenclature that I need to use to be able to capture all of the related costs that I would want to compare between mortgage offers.

4) Regarding the mortgage itself, is there a general rule of thumb for assessing the spread between 15 year versus 30 year (and whether the current environment makes one more advantageous than the other)? For example, bankrate.com shows a 30-year fixed as 5.84% and a 15-year as 5.03%. Is the 81 basis point difference a “normal” spread?

Any help is greatly appreciated, as this is the first major purchase of a home that I have made.

-RJ
muffins14
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Location: New York

Re: Home Mortgage Questions (Process and Timing)

Post by muffins14 »

1) it depends. Probably submitting the app will mean it goes to a human. The human will get the app and likely give you the letter. Some places will just give the pre approval automatically, no human.

2) yes. Same day is not necessary though. You have like a 3-4 week window during which all credit pulls off the same type (e.g, home mortgage) are treated like one pill by the scoring model. I did 5 or 6 lenders in a 4 week period. No impact for me.

3) yes. Ask for rate sheet and closing cost details. They will share it at least once. You can then take the best to the worst and ask them to match it. Then take the new best to the new worst and rinse and repeat. At some point a lender may get annoyed because it will be obvious you are shopping around. You have to do what’s best for you though.

4) I wouldn’t even consider 15 years. Do 30, either a fixed rate or an adjustable rate. Having 30 instead of 15 gives you more flexibility

Ask your realtor if they have a mortgage lender they recommend, and they’ll likely refer you to 3-4 humans
Crom laughs at your Four Winds
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Supergrover
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Location: PHL / NJ

Re: Home Mortgage Questions (Process and Timing)

Post by Supergrover »

You may want to try a small, local mortgage broker, too. I research the rates and then call the gentleman I’ve used 3 or 4 times now. He represents more than one lender I think. Last time I refinanced he had excellent rates that were just as competitive as the big online lenders.

My point is you can arm yourself with a little knowledge and see if a broker can help you…save you some work.
twh
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Joined: Sat Feb 08, 2020 2:15 pm

Re: Home Mortgage Questions (Process and Timing)

Post by twh »

I'm closing soon.
Any place you apply with will pull your credit.
You don't want to have too many of these credit pulls and will probably be called upon to explain all of them.
Too many credit pulls will lower your credit score.
I had two pre-approvals...one with a lender that doesn't do land nor construction loans and one with a lender that also does those (and regular loans).
I explained to each of them why the other one existed and they were fine with that.
So, you want to research rates extensively before you get in with someone.
Pay attention to upfront costs, like points and fees.
Understand the rate lock and the how long it lasts and if there is a float down option (there probably will not be).
Jumbo loans are often lower rates than conforming loans.
If you plan to be there a while, you should consider a 10/1 ARM (or sometimes it is called 10/6, since it adjusts every 6 months after the 10 years). One would assume better rates should appear within 10 years.

If you can have access to Navy Federal, they are flexible long term. Years ago, a friend of mine with a mortgage there even got a letter from them offering to adjust the interest rate without actually refinancing. They are not real fast, so don't get to them after you already sign a contract. They also allow a free one time rate float down after a rate lock.

If you are at Schwab and have significant assets, give Rocket Mortgage a look. They have discounts and very low fees and are responsive. They will have a standing pre-approval letter in your account. You can use the money in the account for closing and not have your down payment withdrawal drop into a lower discount bracket.
https://www.schwab.com/mortgages/mortgage-rates
Lindyhopper
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Joined: Wed Aug 08, 2018 3:34 pm

Re: Home Mortgage Questions (Process and Timing)

Post by Lindyhopper »

Don't forget that "Price" has 3 components: rate, points and fees.
Some lenders market a low rate but have high fees, esp. the "junk" fees that show up in Section A of your Loan Estimate (things like "processing fee," "admin fee," ....)
safari
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Joined: Mon Nov 08, 2021 1:23 pm

Re: Home Mortgage Questions (Process and Timing)

Post by safari »

Look at the APR to compare different quotes. APR takes into account points and lender fees. It's far from perfect, but all lenders are required to provide the APR with every quote exactly for that reason - to help consumers compare apples to apples.
exodusNH
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Re: Home Mortgage Questions (Process and Timing)

Post by exodusNH »

safari wrote: Thu Mar 30, 2023 10:34 pm Look at the APR to compare different quotes. APR takes into account points and lender fees. It's far from perfect, but all lenders are required to provide the APR with every quote exactly for that reason - to help consumers compare apples to apples.
This is the quickest way to eliminate the ones with crazy fees.

This is why you'll see the interest rate of 5.2% but the APR 5.7% for one loan but another would be 5.25%. The difference is the fees.
twh
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Joined: Sat Feb 08, 2020 2:15 pm

Re: Home Mortgage Questions (Process and Timing)

Post by twh »

Comparing the APR is not that simple. For ARM mortgages, the APR includes a hypothetical interest rate change after the fixed rate period is over. I'm not sure the exact requirement for the calculation, but it isn't just based on the fixed rate period. So, be careful just comparing APR with ARM loans.
invest4
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Joined: Wed Apr 24, 2019 2:19 am

Re: Home Mortgage Questions (Process and Timing)

Post by invest4 »

Some items for your consideration:


* Do not stretch for too much home. Opinions vary, but 3x income is a reasonable starting point as far as what is affordable.


* Do not purchase a house with less than 20% down


* Real-estate attorney: can assist you with the whole process and help ensure you do not make mistakes. The first time can be daunting.


* Read and understand what you are signing. Ask questions! This will help you be more confident in the future.


* ARM vs Fixed Mortgage: Consider an ARM if you believe mortgage rates are likely to decrease in the upcoming years as a result of Fed actions. Save money now and refinance later.


* Fixed Mortgage Term: If you decide to go with a fixed...definitely 30 vs 15 years to provide yourself with:

- Liquidity

- Leverage for further investments in tax advantaged accounts, etc.


Best wishes.
muffins14
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Location: New York

Re: Home Mortgage Questions (Process and Timing)

Post by muffins14 »

safari wrote: Thu Mar 30, 2023 10:34 pm Look at the APR to compare different quotes. APR takes into account points and lender fees. It's far from perfect, but all lenders are required to provide the APR with every quote exactly for that reason - to help consumers compare apples to apples.
For comparing a fixed rate loan to an ARM this won’t work. I believe for the ARM they make worst-case assumptions about the rate after the locked in period, so comparing APRs doesn’t really work

Edit: +1 to twh
Crom laughs at your Four Winds
Topic Author
RJ1982
Posts: 56
Joined: Wed Jun 26, 2013 9:58 am

Re: Home Mortgage Questions (Process and Timing)

Post by RJ1982 »

muffins14 wrote: Fri Mar 31, 2023 6:45 am
safari wrote: Thu Mar 30, 2023 10:34 pm Look at the APR to compare different quotes. APR takes into account points and lender fees. It's far from perfect, but all lenders are required to provide the APR with every quote exactly for that reason - to help consumers compare apples to apples.
For comparing a fixed rate loan to an ARM this won’t work. I believe for the ARM they make worst-case assumptions about the rate after the locked in period, so comparing APRs doesn’t really work

Edit: +1 to twh
Thank you (and everyone else who chimed in) for the helpful comments.

Regarding how (and when) to utilize the APR as an evaluation metric, is it true that I would be able to use the APR to compare fixed loans, I just shouldn't use it when evaluating ARMs?
muffins14
Posts: 5528
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Home Mortgage Questions (Process and Timing)

Post by muffins14 »

RJ1982 wrote: Fri Mar 31, 2023 9:41 am
Thank you (and everyone else who chimed in) for the helpful comments.

Regarding how (and when) to utilize the APR as an evaluation metric, is it true that I would be able to use the APR to compare fixed loans, I just shouldn't use it when evaluating ARMs?
My guess is that you could, but I'd just compare everything separately:

1) What are the closing costs, and what can you negotiate or shop for?
2) Given the same term and loan product, what is the interest rate on the loan, with zero points?

It's possible that if the closing costs are different between two lenders, they will match for you. Often lenders put the worst-case things on for closing costs too, like assuming your appraisal will be $$$, or the title insurance is $$, but some of that will be lower in the actual loan than on your term sheet before closing. In my experience the numbers on the sheet were quite different by closing, because they assume some numbers for escrow, insurance estimates (both of which you may avoid or pay less of in one way or another), and one estimate included taxes but the taxes were to be paid by the seller, not me, so I asked them to remove them. They would have come off later anyway, but it was helpful for me to do an apples-to-apples among lenders
Crom laughs at your Four Winds
twh
Posts: 1773
Joined: Sat Feb 08, 2020 2:15 pm

Re: Home Mortgage Questions (Process and Timing)

Post by twh »

RJ1982 wrote: Fri Mar 31, 2023 9:41 am
muffins14 wrote: Fri Mar 31, 2023 6:45 am
safari wrote: Thu Mar 30, 2023 10:34 pm Look at the APR to compare different quotes. APR takes into account points and lender fees. It's far from perfect, but all lenders are required to provide the APR with every quote exactly for that reason - to help consumers compare apples to apples.
For comparing a fixed rate loan to an ARM this won’t work. I believe for the ARM they make worst-case assumptions about the rate after the locked in period, so comparing APRs doesn’t really work

Edit: +1 to twh
Thank you (and everyone else who chimed in) for the helpful comments.

Regarding how (and when) to utilize the APR as an evaluation metric, is it true that I would be able to use the APR to compare fixed loans, I just shouldn't use it when evaluating ARMs?
You can compare fixed rate loans directly with the APR. If the Rate and the APR are less than a 0.10% apart, this is likely a zero points loan and the lender processing fee is less than $1,000. When adding ARM's to the comparison, start with the Rate and then you have to look deeper into the points and fees. The ARM APR is going to reflect at least some adjustment after the fixed rate period is over. I'm assuming there is some regulatory formula, but I don't know what that is and it really doesn't matter since it really isn't important unless you are choosing a very short term ARM like 3 years.
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