Hi Robert,

We shop at the local wholesale retail store and its always been a great place to shop, with good prices while buying in bulk.

I was at their store this week and I noticed that they now offer discounted mortgage loans to their members, and its capped at $600 in fees.

I want to buy a 2nd home now and I am already pre-approved for a purchase. But I saw this and I just want to know if it is true that I can get a better deal with this retail store for a new mortgage if I work with their preferred lenders. What are your thoughts?

David B. – San Jose, CA.

 

Thank you for your email David. In regards to the mortgage deal beng offered, it may or may not be the best deal. It depends on the overall picture and what the rate is and not just the closing costs.  Let me explain…

The higher amount of closing costs that you pay, the lower the interest rate you will get with most loans. If you have limited funds, you can just bump the rate a little and lender will get enough of a “rebate” to pay for your closing costs. So if you have some funds to pay your own closing costs, you may be able to get  better interest rate. Either way you will pay for your closing costs. Either in one lump sum when you first get your loan in the form of points, appraisal and other lender fees, or in the long run by raising your rate to offset the closing costs.

Do the Math

I think that what you need to do is do the math to determine how long you are staying in or keeping your home. For example, if you save $2,500 by getting a higher interest rate and you are paying $50 more per month with the higher rate, it will start to cost you more after the 50th month because once the break-even point of 50 months comes and goes, it is a loss. But if you plan on being in the home for less than 50 months then you do better by paying a little higher rate and selling or refinancing at or before the 50th month. However, history has taught me that many times most people stay in their homes or keep their existing mortgages for longer then they thought they would.

If I was you, I would take advantage of the best rate, a fixed rate fully amortized loan (loan is paid off at the end of the term) for 30 years or 15 years if you can afford it because you are not guaranteed that rates will be what they are today. Unless of course you do not have the needed funds to close the transaction and would rather pay a little higher rate.

Many people think that its about rates or closing costs, but in reality it’s about BOTH plus the type of loan you are being offered. A lot of “teaser” ads will quote a super low rate but not really show what the type of loan it is or what the closing costs are. Its important to look at the entire picture before you make the final decision.

Shop That Loan!

Speak to the people at Costco who are doing mortgages and insist on a written Good Faith Estimate or Work Sheet that shows the type of loan, the interest rate AND the closing costs. Then go to a few other mortgage lenders or brokers and shop what you have to see if you can get a better deal. You may find that the $2,500-3,500 savings could cost you a lot more in the short run and the long run.

Before you do this however, know what your credit score is because this will determine what your rate will be. If you can, get a copy of your credit report. But not just any credit report, make sure it is a “merged” credit report with scores from all three credit bureau’s and pulled by a mortgage company as the credit reports you pull yourself and the ones that a mortgage company or broker will pull are probably a lot different, with the mortgage lender’s credit report being the one all mortgage companies will pay attention to and use to determine the type of loan they can offer you.

Also, make sure that when you do compare mortgage loans that you are comparing apples with apples, and oranges with oranges. Meaning, make sure you are comparing the same exact type of loans.

Last but certainly not least, know who will be giving you the mortgage services and preparing your application and paperwork. A good mortgage loan officer knows the in’s and out’s of the mortgage business and may be crucial in making sure you get the best deal possible. There are certain things that only seasoned mortgage professionals know that could help you, but that are only known to experienced professionals because they do this every day, it is their career and experience can many times be golden.

I also shop at some of these discount wholesale stores and I stick to products and certain services. If I am walking down the isle and someone offers me discounted dental work in bulk, I tend to be careful because there are certain things that only the right dedicated professionals should be handling.

Best of luck to you and thanks again for your email.