If you’ve been following lately, you’ve seen that I’m finally working on purchasing a second home. After selecting the right home, the next biggest step is to choose a mortgage lender. The mortgage lender you choose is instrumental in determining your monthly mortgage note, as well as whatever closing costs you may have.
How to Find a Lender
When I first purchased my first home, I used sites like LendingTree.com to search. I received a lot of offers back then – and that was with almost no savings and a 3.5% downpayment. Be warned! You’ll receive calls the second you press the “Submit” button. These calls stop within a few days.
However, LendingTree didn’t seem to offer as much the second time around. Even with 20% down, higher salary, and more reserves I received only one offer. Perhaps this is just the way the site is set up. Either way, because of this I needed to reach out to lenders directly. I sought out four lenders – two local and two national.
Mortgage Lender Overview
You’ll see below an overview of each company’s offer. These are the important highlights that are broken down in detail in the later tables. I removed the company names so that I’m not accidentally ‘promoting’ one company over the other.
All 4 lenders came within 10% of each other in terms of total closing cost. You may also notice Company S has .25% lower APR than the next company. However, their Estimated Monthly Payment is nearly $100 more. Why? See the Monthly Payment chart to explain.
Closing Cost Estimates
To be honest, I really didn’t look at this chart. I asked a few of the companies if any of these were negotiable and apparently not. Company M reported that they estimated on the high side, and always closed lower. They did this because once an estimate is listed, they can’t require more to close. Either way, that’s nearly a $1000 higher estimate – I chose to take my chances with a lower priced company, hoping they didn’t estimate too low.
The deal with Prepaids
Prepaids are the payments a borrower is required to make into escrow at closing. The way I understand it is it is simply insurance for the lender in the event the borrower is late on payments. This amount varies by lender – but apparently the minimum is 2 months taxes and insurance.
Now I will admit that even though Company S lists prepaids at $3524.80, I believe their tax estimation of $225 is a high estimate. Based on other houses (non-homestead) I expect annual taxes to be around $1700. The other companies estimated a little low on that side.
Ultimately, Company F only required 2 months prepaids – even if they estimated taxes higher, non of the other companies come close.
Monthly Payment Estimates
Right now, these numbers are kind of a shot in the dark. After locking my rate, selecting insurance, and determining an accurate tax estimate these numbers will be more meaningful. The only portion truly determined by the lender is the P&I because of the interest rate.
Based on all of the estimates, I should have gone with Company S. However, they are a national company and I wanted to close before April 1st – otherwise I would need to pay a full month’s per diem interest. I actually used Company S on my primary home, and while they have proven to be very helpful they were a bit slow in the process. Because of all this, I’ve chosen to use Company F. They are local and claim to close in three weeks or less. My realtor verified this information as well.
Sign up for email updates so to follow along with the process! Next up, what rate did I receive and getting more accurate insurance and tax estimates!