Buying a home is one of the most important decisions in a person’s life. It can also be one of the most stressful experiences, given the amount of money involved, the different types of homes, mortgages, and terminology that goes into buying a house.
In buying a home, you might be tempted to listen to your realtor or mortgage brokerbut a home loan is too large of a debt not to be an active participant in. It’s important to shop around, just as you would for a car or even something much smaller like a refrigerator, to see what your options are and what suits your needs best.
There are a tremendous amount of mortgage providers, some large, some small, that all offer different rates. On top of that, they also offer different types of mortgages. Doing your research will help you find the one that is best for you.
If you feel more comfortable dealing with larger companies, you may look at two of the largest mortgage lenders in the U.S.—Bank of America and Wells Fargo. The following is a side-by-side comparison of two of their mortgage offerings to see how they stack up against each other. Each loan was for a $250,000 home with a 25% down payment. All figures are based on rates as of June 2022.
- Bank of America and Wells Fargo are two of the nation’s leading mortgage loan companies.
- Bank of America currently offers the superior interest rate for the 7/6 adjustable-rate loan between the two.
- Wells Fargo is the leader when it to fixed-rate mortgages (in terms of interest rates between the two).
30-Year Fixed-Rate Mortgage: Wells Fargo
The first point of comparison is the standard 30-year fixed-rate mortgage. Bank of America offers an annual percentage rate (APR) of 5.68%, compared to Wells Fargo’s 5.569%. Bank of America’s 30-year fixed loan for a $250,000 home with $50,000 down would have a monthly payment of $1,136. The same loan with Wells Fargo would have a monthly payment of $1,120. At closing, the Wells Fargo loan includes 1.0 in discount points (which would be $2,000 in our example). Meanwhile, Bank of America charges 0.903 in discount points.
7/6 ARM Mortgage: Bank of America Wins
Next is the adjustable-rate mortgage (ARM), specifically the 7/6 ARM. This type of mortgage locks in your interest rate for seven years. After year seven, the interest rate begins to adjust on semi-annual basis (every six months), often based on the prime rate plus a margin.
People who choose a 7/6 ARM either don’t plan to stay in the home for more than five years or plan to refinance at the end of the 7-year period. Note that the monthly payments are lower, but the total cost over 30 years (assuming you keep the loan) will likely be higher than a fixed-rate mortgage.
Bank of America offers a 7/6 ARM with an APR of 4.483% and 0.764 of discount points. The initial payment for the first seven years is $1,074. Wells Fargo offers an APR of 4.582%, 0.75 in discount points, and a monthly initial payment of $1,089. The total that the interest rate can move over the life of the loan, either up or down, for both lenders is 5%.
How Do You Compare Mortgage Deals?
Two of the most important factors when comparing mortgage deals is your interest rate and closing costs. Generally, the lower the rate and lower the closing costs, the better. Your annual percentage rate (APR) is the effective interest rate you’ll be paying for your mortgage—which includes not just the interest, but also other charges to get the loan, such as broker fees and points.
What Federal Agency Deals With Predatory Mortgage Companies?
Predatory mortgage companies can be reported to several agencies. Complaints about discrimination can be reported to the Consumer Financial Protection Bureau (CFPB) and Department of Housing and Urban Development (HUD). Issues with payments and fees can also be reported to the CFPB. The Federal Trade Commission (FTC) handles issues related to deceptive statements, omissions of important facts, and misleading actions.
What Is the Best Mortgage Deal for a First-Time Homebuyer?
One of the best options for first-time homebuyers is a Federal Housing Administration (FHA) loan. FHA loans for first-time homebuyers offer key advantages over conventional mortgages—including a down payment as low as 3.5%, more lax credit requirements, and lower closing costs.
The Bottom Line
Almost all mortgages will include closing costs, which can vary by lender. Also, keep in mind that some people who are trying to sell you on a certain lender are receiving commissions. Although they should have your best interest at heart, that isn’t always the case. Make sure that you do all of your own research and shop for mortgages on your own in addition to listening to others.