Foundry How To: Shop Lenders
The Basics:
- Locking the best interest rate is usually only possible when you are under contract to buy a property. Therefore, do not make your final decision on a lender until you have checked with all loan officers you have chosen as finalists after you have signed the agreement to purchase a home.
- If you lock the rate and rates rise, you are protected. If you lock and rates fall, it is possible that you will be able to receive a better rate (float-down), however the rate will have to fall more than 1/4% and do so at least seven business days prior to closing.
- "Par" is defined as the daily rate with no points or lender credit.
- Paying "points" means that you are paying extra closing costs in order to get a "lower than par" interest rate. Be careful not to waste money on points as the monthly change in payment is negligible compared to the up-front cost of the points.
- Accepting a rate higher than par will yield a lender credit back to you that you can use to cover some of the closing costs. This is a very popular way to save money in the short term.
- Since closing costs are affected by the rate you choose on any given day (see tips 5 and 6), then it's important to know how to separate lender charges from all of the other fees you will pay. This can be done with some up-front preparation. See the examples below.
The Forms:
Lenders use either the Loan Estimate or Fees Worksheet form for quoting estimates. Since most of the closing costs and escrow items will be determined by the closing attorney, who is typically chosen by the real estate agent, the best way to compare lenders is to look only at the rate and "net lender charges". If you are shopping multiple sources, be sure to request the same interest rate at each lender so that you can easily determine which lender is charging the least amount. Once you are familiar with the process you can look at different rate scenarios to see which one is the best option for you. For more information on lender credits and rate buydowns, click here.
Net Lender Charges on the Loan Estimate
Net Lender Charges on the Fees Worksheet
