In the last article, I discussed factors to consider when choosing the right lender. One of the most important factors is what you'll be paying – at closing and over the life of the loan. Whether you’re looking to refinance your current home (with rates dropping!) or planning to purchase a new home, understanding the details behind what you are being charged specifically from the lender is crucial. Understanding what rates and fees lenders control affect your home loan and can make a significant financial difference.
Here’s a breakdown of the key elements lenders can control and what you should focus on when evaluating your options.
Loan Estimate Basics: What Lenders Control and They Need to Tell You
When applying for a home loan or refinance, you should expect a Loan Estimate (LE) or Fee Sheet from the lender outlining the costs associated with your mortgage. Be sure to ask for one of these documents if your lender is not being upfront on what they plan to charge you. The two main areas where lenders have the most control are:
1. Interest Rates
The interest rate is the obvious thing to track. It is the percentage you will pay annually to borrow the money. For airline pilots who often qualify for competitive rates due to strong employment histories, this is the first element to scrutinize. Even a slight difference in rates can lead to significant savings over the life of the loan, especially if you’re planning on a 30-year mortgage.
2. Section A Fees
Section A of your Loan Estimate is the “origination” section, covering fees the lender charges to process your loan. Besides any lender credit and the rate, this is the only fee section lenders control on the Loan Estimate. Items you may see under this section are:
- Origination fees
- Application fees
- Underwriting fees
- Processing fees
- Lender fees
- Discount Point
Lenders have the power to adjust these fees, and it's an area where you can sometimes negotiate. Lower Section A fees mean less out-of-pocket expenses at closing and a better overall loan structure. Be cautious of high fees, as they can impact your APR.
- Foot Stomp! Make sure to compare offers across multiple lenders. Ask to see the lender's Loan Estimate or Fee Sheet without showing the estimate to the other lenders. Hold them accountable to show you a blind offer. For an apples-to-apples comparison, look specifically at the Rate and Section A fees. Other fees that are not controlled specifically by the lender include (but are not limited to) Taxes, Insurance, Title and Appraisal. If these fees differ on the loan estimates, it is not as important since they are typically not controlled by the lender. In a future article, I'll break down these other fees and how they're calculated.
The Difference Between Rate and APR: What You Need to Know
While your interest rate represents the cost to borrow the money, your APR includes additional costs, giving you a clearer picture of the overall cost of your loan. The APR encompasses both the interest rate and any lender fees, including those from Section A.
This is why the APR is often higher than the interest rate. It accounts for not only what you’ll pay on the loan, but also the associated fees spread over the life of the loan.
- Why APR Matters for Pilots: If you're comparing multiple home loans, look beyond the interest rate. A loan with a low interest rate but high fees might have a higher APR, costing you more in the long run. Since airline pilots may move frequently due to fleet and domicile changes, the APR may help determine which loan is the best fit for your specific career situation.
How Rates and Fees Affect Your Bottom Line
The lower the lender-controlled (Section A) fees and the lower the interest rate, the lower your overall APR will be. It's crucial to minimize unnecessary fees and secure the best possible rate.
- Maximizing Your Home-Loan Options as a Pilot: If you qualify for both VA loans and conventional home loans, get a Loan Estimate for each option and compare rates, Section A fees, and APRs to see which structure benefits you the most. Use your strong employment track record to potentially negotiate terms, or even better, work with a lender who is familiar with the airline pilot pay contract.
Final Thoughts
Understanding the difference between rates and APR, and how lenders control Section A fees is key to making informed decisions about buying a home or refinancing. You’re in a unique position to secure competitive rates and potentially save thousands over the life of your mortgage.
I invite you to write me (the author of this article) if there’s a topic you’d like me to explore in future articles. You can reach me at [email protected] or spencerattrident.com.
Trident Home Loans (Equal Housing Lender, NMLS 65716) is an airline industry leader for securing the right mortgage for you. Contact Spencer Wartman (NMLS 2109932) at [email protected] or spencerattrident.com and let him help you secure your future home!
Trident Home Loans, NMLS ID 65716, Corporate Office located at 6723 Plantation Rd, Pensacola, FL 32504.Any offers or advertisements for mortgage products on our website or other platforms are subject to conditional approval. The actual terms and conditions of a mortgage loan, including interest rates, loan amounts, and eligibility, are dependent upon several factors, including the borrower's creditworthiness. Trident Home Loans reserves the right to modify or revoke any offer, and final approval is contingent upon the completion of a full application, verification of information provided, and meeting all underwriting requirements. For information regarding our licensing, you can visit our website at www.Tridenthomeloans.com.Trident Home Loans is an Equal Housing Lender. Please note that this disclaimer is provided for informational purposes and may be subject to updates or changes in accordance with regulatory requirements. Borrowers are encouraged to contact Trident Home Loans directly for the most up-to-date and accurate information regarding mortgage products and offerings. This advertisement is not an offer to lend, and all applications are subject to credit approval. Terms and conditions may apply.
