Loan/Mortage shopping and refinancing tips for your new house or property!

I’ve bought 2 houses in the last 4 years, and refinanced one of those in that time. So, that’s 3 times going through the mortgage process in the last 4 years, shopping around and talking to lenders, brokers, and loan officers. This is what I’ve learned. The most recent purchase I did was just 6 months ago, so I need to write this down before it totally fades away from my memory. Here you go.

Mortgage hunting tips:

1. As you shop lenders, compare against the official mortgage rates here: https://www.freddiemac.com/pmms.
   1. Loan officers expect you to not know this website exists…but it does. Example screenshot:

   

2. A really good lender will be equal to or up to a 1/4 point¹ lower than the rates on the chart above, with no buy-down points and no origination fees.

   ^{Note 1} A “point” is 1% of the original loan amount, so 1/4 point = 0.25% of the original loan amount.

3. If you are VA-loan eligible (as a prior US military member / a US military veteran), using your VA loan can drop your interest rate an additional 1/4 to 1/2 point below that it would otherwise be, for free, since VA loans are lower interest. VA loans can also allow $0 down payments in many cases if that’s something that interests you.
   1. Here is my VA loan calculator: https://gabrielstaples.com/va-loan-calculator/.
   2. In my experience, probably 80% of loan officers won’t know how to do these calculations for you, so you have to do them yourself. They will rely on their loan originators to do the calculations, which can stall you for weeks potentially and may require you to proceed with the loan first.

4. For VA loan pros and cons, and example calculations, see my section on this titled “VA loan pros and cons” further below.

5. Using a loan broker, not an originator nor consumer-facing lender, can frequently give you better deals.
   1. Whereas a consumer-facing lender / loan originator can only offer you one lender (themselves) to choose from, a broker can shop the wholesale loan market and choose from dozens or even hundreds of different lenders to help you find the best deal! Essentially, the broker acts as a loan coordinator to broker (ie: arrange, or coordinate) a deal between a lender (the company who gives you the loan) and a buyer (you, who needs the loan).
   2. Brokers take a small fee for this service, but they are frequently more-efficient than lenders directly, and therefore can still frequently give you a better deal than if you went to the consumer-facing side of the lender directly! Remember: if you go to a lender, such as PennyMac, directly, that’s the consumer-facing side of the lender. But, if you go to a broker, they would go to the wholesale side of the lender, and negotiate a back-end deal for you with the lender in the hidden “debt market” world. This wholesale side of the debt market can get you better deals.
   3. Ex: a broker might get your a loan through PennyMac (the lender) at 6.00% interest with zero buy-down points and $0 lender origination fees (all via the back-end wholesale debt market), whereas if you went to PennyMac directly (via PennyMac’s consumer-facing market), they might get you only 6.25% interest rate with zero buy-down points and $1500 in lender origination fees. When you go to the consumer-facing loan department at PennyMac, you are costing them more overhead money, and they must pay that loan officer to talk to you. By going to the broker instead, PennyMac saves their overhead costs, and the broker is incentivized to try harder to reduce their own costs so they can take a lower cut and still make money when they sell your loan to PennyMac in the “wholesale debt market” behind the scenes.
   4. Loan brokers essentially buy and sell debt to and from loan originators in a wholesale “debt market”, which is like the stock market, but used to buy and sell debt instead of equity.
   5. Why would someone want to buy your debt, you might ask? Well, lenders might want to “buy your debt” by taking on your loan so that they can collect your interest payments. If you have a high credit score and are a low risk, they can pay $1M for your $900k loan, for instance, to buy it from another lender or to originate it, but then they might collect $1.9425M (assuming 6% interest rate) over the life of the loan, making money over the next 30 years.
6. To calculate the cost of your mortgage over X years, use my spreadsheet here: My Personal Finances - Staples - Just the TVM (Time Value of Money) Equations, equation 6.
   1. Example, enter a loan amount of $900000, 6.00% annual interest, 30 years, 12 compounding periods per year, and you’ll see that the loan will cost you $5395.95/month for principal and interest payments, for a total lifetime payment of $1942543.70, with $1042543.70 of that being interest!

   

7. NEVER give your SSN nor birthday nor other highly-guarded personally identifying information to a loan officer on the phone until they have emailed you and you have verified their true from email address to ensure it looks like it comes from a valid company, and their registered NMLS number here: https://www.nmlsconsumeraccess.org/.

8. If a lender’s verbal numbers over the phone are competitive, always ask for an “LE” (Loan Estimate) when shopping for a new mortgage loan through brokers or lenders. It is a concise 3~4-page document that lays out the basics of what they can offer you.
   1. When comparing LEs, remove the “Prepaids” (section F) and the “Initial Escrow Payment at Closing” (section G) sections from your comparisons across multiple LEs / multiple lenders. Some lenders do a really good job getting these parts right, but most gloss over them initially and leave them blank or just guess some numbers for the first draft. In the end, property taxes are determined by the county, not the lender, and homeowner’s insurance is determined by you and your home insurance company, not the lender! Also, section F varies based on the exact closing day you end up signing the loan on, so this can easily vary from estimate to estimate even if the estimates are otherwise equal, and the lender won’t actually take the time to contact the county and get Section G totally right until you have fully applied and are on your way towards closing on the loan.
   2. So, remove those sections when comparing across LEs.
   3. Note: the “Loan Estimate” (LE) replaces the older “Good Faith Estimate” (GFE). See here: https://www.thebalancemoney.com/compare-good-faith-estimate-1798461 (emphasis added):

   The GFE has been replaced by the Loan Estimate, and the HUD-1 by the Closing Disclosure. If you purchased a home after October 3, 2015, you should have received these documents. The new document is very similar to the original.

9. The vast majority of brokers and lenders worth talking to will give you their numbers for interest rate and P&I (monthly Principal + Interest payment) over the phone within 5 minutes of talking to them.
   1. If they are stalling or screwing around with you, politely call them out on it. You may ask to speak to a manager or different loan officer if you’d like to try someone else at the company. Not all people do their jobs equally well.
   2. Do not ask for an LE from everyone if their numbers just aren’t good, but if their numbers are competitive, ask them for one. If you verbally request it, the good ones will give you a written, emailed LE within 1 day of talking to them, even without a full application with them. If one of them says otherwise, remind them over the phone that most good ones will, and point them to this article. I’ve spoken to probably 75 or so lenders, and found this to be the case.
   3. If your lender refuses to give you a written LE until you formally apply, and refuses to give you a verbal, estimated interest rate and P&I for your requested loan amount, then they aren’t worth talking to. Get off the phone and quit wasting your time with them! But, if they have given you competitive numbers and only refuse to give you a written LE until you formally apply, then feel free to apply, so long as you’ve verified their email address and NMLS number already–see above! From https://www.thebalancemoney.com/compare-good-faith-estimate-1798461 (emphasis added):

   Lenders are required to issue the loan estimate within three days of a home loan application. If a loan originator does not provide a loan estimate within three business days of receiving a completed loan application, that lender is in violation of current regulations.

10. You do not have to use a local lender or broker! The company that might give you the best deal for your Idaho or Arizona or Virginia loan, for instance, might be in California or Utah or wherever. So, look across multiple brokers and lenders online or elsewhere. When you call, simply tell them which state your are in and ask them if they are legally authorized to do business in that state.

11. Compete your lenders against each other to get them to give you the best deal!
    1. Oddly enough, this is actually a core part of their business, and they are very accustomed to competing for your business. This is a common practice. Just be open and honest with them and don’t let them jerk you around. Stand your ground. Here is a basic strategy:
       1. Talk to 5 to 6 lenders, including at least 2 who are brokers, since brokers can frequently compete the best, by far, and frequently have the most leeway to compete! (At a large lender, the consumer-facing loan officers are limited by loads of bureaucracy and company policies. At a smaller brokerage firm, however, the brokers can frequently decrease their commission to sweeten the deal for you if they really want your business).
       2. Choose your best 3 LEs/companies, and try to negotiate with them over the phone to get them to beat the others. Ex: call the 2nd best company and say, “company 1 offered me x interest rate with zero buy-down points and no origination fee.” I know you said you can do y, but since they are offering x, can you beat it?” They may offer a better deal, or they may say they can’t compete unless the other LE is “locked”. If they improve their verbal deal, repeat this step, calling the new 2nd best company and asking if they’ll beat it. Once your top 3 have said they need a locked LE to compete further, proceed to the next step.
       3. “Lock” the Loan Estimate (LE) with the best one company, and take that locked LE to the other two companies. See if any will “compete” with this locked LE and beat it. If they will, ask them to lock their competing estimate. If they won’t or can’t offer something better, or if they verbally offer something better but refuse to lock their better deal by producing a locked LE themselves, tell them they are self-eliminating, and then remove them from your list. You need the “winner” here to both beat all other deals, and write it down into a locked LE. Once they lock their competing LE, take it back to the first company who locked, and ask that first company to beat the new best locked LE. If they say they can’t beat it, or if they say they refuse to lock a new estimate, inform them they are self-eliminating, and then remove them. If the first company who “locked” does compete against the new locked LE and beats it again, ask them to lock it. Take it back to company 2 who beat the first locked LE from company 1, and ask company 2 if they can beat this new locked LE from company 1. Repeat this process until you have a winner among the top 3 best LEs. Be open and honest throughout this process. After you get your first locked LE with the original best deal, it’s okay to tell them you are going to compete that offer. When you talk to the other top 2 companies, ask them to compete. If it comes up, don’t hide it that you’re going to compete until everyone self-eliminates and a single “winner” emerges. You don’t necessarily need to advertise it to them like this, but you don’t have to hide this fact either.
    2. Real-life example: on a VA loan refinance in Dec. 2020, I used the above technique to get a killer good deal. One company was offering 2.25% interest rate with a closing cost (excluding Prepaids–section F, and Escrow–section G) of $13000. That wasn’t a good deal on costs. They had a $7200 origination fee. A more-typical competitive offer was 2.25% interest rate with a closing cost of $7500. I contacted a broker and got that down to $3000, which was amazing! I was still probing, so I let them just make their best offer rather than telling them what my current best was. Once they did that, I used that as a baseline. I locked the LE and then did the competition strategy above, reaching out to another broker. After a few rounds of back-and-forth between the two brokers, my total closing costs ended up being about negative $1500, meaning I was making money instantly on the refinance! And no, I do not mean I took “cash out” and raised the loan amount. I mean, the loan amount stayed exactly constant, and the interest rate was 2.25%, and the loan origination fee was $0 with zero buy-down points, and on top of all of that I got $1850 in lender credits. So, once I got back the old loan’s escrow, I was able to use it to fund the new loan’s escrow, and was then still left over with $1500 extra back in our pocket, due to the lender credits which covered part of the escrow. The all-up cost of our refinance was negative $1500. The LEs I got ranged from this -$1500 cost to up to $20000 cost, with a more-typical number being around $7000. Shopping around and competing LEs can save you tens of thousands of dollars!
12. You may want to pay a little extra, rather than competing for days or weeks.
    1. If you’re in a rush to close (ex: due to building a new house and needing the lender to move quickly once it’s done), and/or have major time constraints on moving out of your current place of dwelling and into your new house, or if you are under a lot of pressure at work, paying a couple thousand extra dollars in origination fees to a local or higher-quality lender over an online or inexpensive broker can be worth it. Consider it. Maybe getting from the +$20000 total cost LE to the +$7000 total cost LE is 5 hours of work, and is 100% worth it, but getting from +$7000 to +$3500 is another 5 hours of work, and less worth it. Then, calling more brokers and competing from +$3500 to -$1500 is another 5 to 10 hours of work. As your costs get lower, you get diminishing returns. At some point, depending on your life pressures and overall stress level, the returns become less worth-it. Have an idea up-front of when you will decide to call it quits and take what you’ve got–that penny-pinching and calling around for days just isn’t worth it. Consider calling at least a few lenders–never just 1 or 2, but you don’t need to talk to dozens, and if you are happy after a single round of locked-LE-competing, feel free to just be done. Save your time and sanity and go play with your kids, build an RC airplane, write an app, or 3D print something.

13. When you receive scanned-in PDF documents (ex: your final, 110 pgs of official, signed “closing documents”) that aren’t searchable because they don’t have text recognized in them, you can use my pdf2searchablepdf tool I wrote to make them searchable for free. It’s open source and no-cost. The command-line to make your pdf searchable would look like this:

     # produce a new set of searchable PDFs (at various compression levels) from
     # input.pdf
     pdf2searchablepdf --compress input.pdf
    

14. Register in the official United States National “Do Not Call” Registry at https://www.donotcall.gov/ NOW to avoid being called by hundreds of money-hungry lenders once your credit is hard-pulled! See my anecode #3 below for details on my experience if you don’t.

15. If trying to buy a new-build house that is under construction, and if interest rates are shooting up during that time, consider doing a long-term lock with a local lender in order to capture that lower interest rate. Some online/long-distance lenders or brokers may also be able to find you a no-fee long-term lock for 6 months to 1 year. This is rare, but can happen. Brokers are more-likely able to shop the wholesale market for you to find a lender who will do a no-fee long-term lock. I found a broker who found a wholesale lender who did this for me in my anecdote 3 below, and it saved us approximately 1 whole point (1% of the loan amount) in our interest rate, which is really good! Most long-term locks may have fees of $500~$2000, but even so, it may be worth it. See my anecdote #3 below. Do NOT do a long-term lock, however, unless they have a “float-down option” to lower your interest rate to the new rates if the interest rates drop instead of rise over that time.

That’s the bulk of my tips for now.

Any other tips you have? Leave a comment!

VA loan pros and cons, and example calculations

1. VA loans (loans administered by the Dept. of Veterans Affairs [VA]), for prior military members, pros and cons:
   1. Pros:
      1. As little as 0% down payment.
      2. Lower interest rates, in general, by 0.25%~0.50%.
      3. No PMI (Private Mortgage Insurance). PMI adds an additional $50~$200 to your monthly payment to insure low-down-payment loans against default since they are higher risk. The VA insures VA loans, however, so PMI is waived.
   2. Cons:
      1. For non-disabled military veterans, there is a “VA funding fee” of 1.25%~3.3% of your loan amount, depending on your down payment and whether or not it is your first use of a VA loan.

         1. Here is a chart: https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/:

            VA funding fee rate charts

            Effective April 7, 2023

            Review the VA funding fee rate charts on this page to determine the amount you’ll have to pay. Down payment and VA funding fee amounts are expressed as a percentage of total loan amount.

            For example: Let’s say you’re using a VA-backed loan for the first time, and you’re buying a $200,000 home and paying a down payment of $10,000 (5% of the $200,000 loan). You’ll pay a VA funding fee of $2,850, or 1.5% of the $190,000 loan amount. The funding fee applies only to the loan amount, not the purchase price of the home.

            VA-backed purchase and construction loans

            Rates for Veterans, active-duty service members, and National Guard and Reserve members

            	If your down payment is…	Your VA funding fee will be…
            First use	Less than 5%	2.15%
            	5% or more	1.5%
            	10% or more	1.25%
            After first use	Less than 5%	3.3%
            	5% or more	1.5%
            	10% or more	1.25%

            Note: If you used a VA-backed or VA direct home loan to purchase only a manufactured home in the past, you’ll still pay the first-time funding fee.

         2. Example calculation: on a $700k 0% down-payment first-use VA loan to purchase a home, for instance, the VA funding fee is 2.15%, or $700000 x 0.0215 = $15050. That’s a lot of money! Let’s assume, however, that your lender would give you a 6.00% interest rate for the VA loan, but a 6.500% interest rate for a conventional loan. How long is your payback period? Using my calculator, equation 6, the monthly payment at 6.5% is $4424.48, but at 6.0% it is $4196.85, for a difference of $4424.48 - $4196.85 = $227.63/month. Since you’re paying the VA funding fee of $15050 for the privilege of using the VA loan, the “payback period” for how long it takes to make up for the funding fee in monthly savings due to a reduced monthly payment is $15050/$227.63 = 66.116 months, or 66.116 months / 12 months/year = 5.5 years. If you keep this loan for 5.5 years or longer, the monthly savings of using this VA loan makes up for the VA funding fee. If you keep the loan for all 30 years, the VA loan savings is a much larger $1592811.42 at 6.5% interest - $1510867.32 at 6.0% interest - $15050 funding fee = $66894.10! Be sure to substitute in your own numbers for your lender. The assumption here which makes VA loans extra valuable in the long-term is that they also have a reduced interest rate and no PMI (Private Mortgage Insurance), not just no down payment. In my calculation above, I didn’t even account for PMI. I only accounted for the reduced interest rate (good for you) and the VA funding fee (bad for you) to see when they cancel each other out. You should account for PMI in your calculations too.

Anecdotes (my personal experiences)–rants and raves

Newest on bottom.

1. Nov. 2019: 1st home purchase ever; 30-year VA loan; 3.375% interest rate; 0% down payment; excellent service and experience; average-to-high closing costs; no shopping around.
   1. In 2019, when we bought our first house ever, we just used the local lender our realtor knew well and recommended. We were under extreme pressure and had to be out of our old house and into our new house within 5 weeks of starting the house hunt. That was crazy-stressful. That lender was amazing. Super helpful and informative. He got us approved on a Saturday night at like 10pm. It went pretty smoothly. We did zero price shopping. We got a decent mid-range closing costs price, I think.
   2. My assessment of the result: good.
      1. It was a good way to go. We had no time to compete. I didn’t have the knowledge to compete either, in that amount of time.
2. Dec. 2020: VA loan “streamlined” refinance; 2.25% interest rate; stressful/bad experience; world’s best closing costs!; tons of shopping around.
   1. In Dec. 2020, during the lowest interest rate period ever in the history of the world, we refinanced. Since we were already in the house, I took the time to shop around. I did extensive shopping and negotiated down to a cost of negative $1500, meaning we instantly made $1500 for refinancing. It was a bad experience, overall, however, because:
      1. Very time-consuming and stressful.
      2. During competing, company 1 was a clear initial winner with a locked LE. I let Company 2 compete. Company 2 blew an already-amazing deal out of the water! BUT, then Company 2 said, essentially, “I don’t want you to let Company 1 compete again.” I should have replied, “No, I will let you both compete until one self-eliminates” [refer to my new strategy description of how I think one should do it, above]. Company 1 then beat company 2 by a lot, after I had already agreed to go with Company 2 but not been totally transparent and not told Company 1. The negotiation turned sour. Both sides got a bit pissed off. I was caught in the middle with no prior negotiation experience. In hind-sight, I’d have calmly told company 2 “no, I’ll let you both compete until one drops out”, and I would have immediately informed Company 1 when Company 2 beat them, and I would have let Company 1 compete again, for sure! That would have gone a lot smoother. Anyway, keep that in mind. Be open, firm, and honest, and if a company starts competing, NEVER agree to a new-winner not to let the original winner compete again! If a company ever gets beat, let them compete again. They want to re-compete, and if you block one from doing so, it really hurts their feelings. By then they have skin in the game and they really want the chance to win your business!
      3. The company I went with ended up having a couple weeks of stressful closing delays. It went through in the end, but he over-promised and under-delivered on when and how much time.
   2. My assessment of the result: fair/mixed.
      1. I should have gone to brokers much earlier, as those two brokers fighting for my business in the end absolutely blew the competition out of the water by being more than $8k cheaper in closing costs than all other companies!
      2. I made a huge mistake in folding to Company 2’s pressure to not tell Company 1 when Company 2 had beat them. This really hurt Company 1’s feelings and caused me immense stress. NEVER agree to a company who beats out another company to not let the company they beat out compete again! ALWAYS go back to the original winner and show them a new LE from the new winner. Be clear what you will do. Ex: “Hi Company 1. I need to let you know that even though I don’t have a locked LE from Company 2, they told me they will do x y and z, and I believe them. If you can’t take this unlocked LE and beat it, that means you are self-eliminating and they will get the loan.” Company 1 might then decide they can negotiate again without another locked LE from Company 2, after-all, even if they normally wouldn’t. It’s really a game of “how knowledgeable and serious do they think you are?” If you are talking like I am recommending here, they will get the hint you are serious and knowledgeable.
3. Fall 2022: bought our 2nd home ever under a 30-year Conventional Loan; 5.625% interest rate; 5% down payment; very stressful/absolutely terrible closing experience; lowest closing costs possible; tons of shopping around.
   1. I shopped around way too much, and wasted way too much time. I accidentally took too many calls and spoke to too many lenders because they just kept calling me out of the blue! Each time my credit was hard-pulled, which happened twice since we shopped over the course of 10 months since our house was a new-build under construction, I’d get 30 to 60 calls over the following 2 days starting at 6:30am! It was horrible! Register wit the National Do Not Call Registry. See above. I ended up not even calling the company I closed with in our refinance above, due to the sour experience. Instead, I closed with the company who lost in our 2020 refinance (simply because I didn’t let them re-compete then!). This time they gave a great offer and everything went smoothly UNTIL IT REALLY MATTERED. The final 2 weeks were absolute hell! The broker was supposed to have the loan officer of the lender start underwriting early, but despite knowing our complicated financial situation, didn’t. As a result, I got frantic calls for 2 weeks straight during closing, and would have to abruptly stop work with zero notice to spend an entire day pulling up dozens more bank statements to send to the underwriter. The fault was the broker for not pushing the lender to begin underwriting sooner, since it was very clearly foreseeable that our underwriting would take extra time!
   2. Also, interest rates were shooing up during this period, from like 3% at the start of 2022 to up to 7% near the end! So, I should have done a long-term lock. ALL of our local lenders would do a long-term lock of 6 months to 1 year, with some stipulations, but very few if any online or remote lenders would.
   3. In hindsight, I made a ton of mistakes:
      1. I took too many calls. 30 to 60 calls in a day, starting at 6am after a credit pull. was HORRIBLE. Add yourself to the “do not call registry.”
      2. Once you get some really good LEs, just stop! Each broker or lender will just waste your time! It’s so flippin’ irritating. BE DONE!
      3. With interest rates rising, I should have used the locked LE of the broker I went with to bargain with a local lender, then paid a local reputable lender the necessary holding fees to do a long-term (6~12 month) lock. One of my 6 or so local lenders really struck me as “this guy really can pull this off and close on-time”. The rest did not. I should have gone with him!
      4. My broker I close with MAJORLY DROPPED THE BALL. Those last 2 weeks cost me probably 7 full days of work, and had major employer repercussions, HUGE stress, delayed our closing, delayed our packers and movers from coming, and caused problem after problem. I should have used that one local lender I liked, even if it costs $500~$2000 extra. We lost money in the end despite getting the best deal ever for this time.
      5. If I’m going to use the broker I used, ASK HIM TO GET THE LENDER TO BEGIN UNDERWRITING 4 WEEKS IN ADVANCE! I asked for weeks, “[Broker], do you have all of my documents you need to close on time?” He kept saying, “yes”, when it turned out he was missing like 30 bank statements and hours and hours of underwriting money tracking they needed from me. I SHOULD HAVE BEEN ASKING, “[Broker], have you gotten the lender to begin underwriting NOW–4 weeks in advance?”
   4. So, it was an absolutely terrible experience due to the closing delays and our need for things to go smoothly. I should have paid more and gone to someone else, or at least been the one myself to press the broker HARD to get the lender to begin underwriting REALLY EARLY. I feel so stressed just thinking about that experience. The negative repercussions were really long-lasting. And, I had to call and rearrange and packers, movers, the apartment walk-through, cleaners, storage units, truck rental, key hand-off, utilities, time off from work, etc. Nightmare! In hindsight, I’d have willingly paid $2000 extra to a better lender in an instant to avoid that stress and lost time.

What will I do next time?

1. I’ll give the 2 high-competing brokers above another shot only if I’m not under major time-pressure to close, and with my new experience and tips above in-mind.
2. If I’m pressed hard to close on time, just use a reputable, local broker.
3. Lock early if interest rates are climbing for the foreseeable future.

See also

1. [my article] https://gabrielstaples.com/va-loan-calculator/

Notes to self

The mortgage industry is practically archaic. Despite being in the year 2023 now, the mortgage industry is decades behind. It still requires extensive human-to-human discussion to get a loan. You still have to do everything over the phone. When you get final documents, they are scanned at like 70 dpi and don’t have searchable text. The entire “debt market” is completely hidden from view–it is in the background where the public can’t see it. Etc. I think perhaps there is an untapped market here to modernize it and give users a more-automated and more-streamlined digital, online process with fewer “middle men” involved who scrape money off the top of your loan cost. Perhaps the mortgage and debt market is today where online banking and payments were in 1998, in the pre-PayPal and pre-Elon-Musk-X.com days. Consider that as a potential business market in the future.