Just because interest rates are low, it doesn’t mean that you can’t end up paying more than you should for a mortgage. Like most things, “the devil is in the details” For example, this case, from an article in CNBC yesterday: [Thanks L!]
Rick Allen, chief operating officer of mortgagemarvel.com, a Web site that allows consumers to search for different mortgages, ran three sets of closing costs in the first week of January for the same mortgage in the New York area and got three different good-faith estimates.
The estimates for closing costs on a $300,000 house with a 30-year mortgage at a rate of 3.5 percent were between $6,911.78 and $9,742.97. The biggest differences were the origination fee the bank charged, the discount the bank gave — or did not give — for the particular interest rate and the cost of title insurance from a third party. The origination fee and the mortgage credit vary because they are one of the ways the lender makes money from the loan.
“The reality is the consumer needs to do lots of homework,” Mr. Allen said. “The government would say that you need to apply with multiple lenders and get multiple good-faith estimates. But providing an application is not always a painless process.”
The last home I purchased, I applied with two different mortgage companies. I don’t remember the difference in the price between the two now, but I remember that the difference was in the thousands, and I had no trouble deciding between the two. Most folks I know just pick one lender and apply. Multiple applications are a pain, but consider the above example. We’re talking around $2,800 difference between the upper and lower estimate. Why spend an additional $2.8K on closing costs when you can put it into upgrading your new home?
The CNBC article has several suggestions for potential home buyers that are worth considering, but this was the best one:
[T]he only real way to avoid paying too much for a mortgage is to take your time and question everything.
It’s hard to argue with that, no matter what you are buying.