How to buy mortgage charges
When you find a house you want to buy, your impulse may be to move quickly to lock in a mortgage rate — especially in a competitive market.
The same goes for refinancers who want to score ultra-low mortgage rates before they’re gone.
But you don’t want to move so fast that you end up with a bad deal. Even a slightly higher rate can add thousands of dollars in interest over a 15- or 30-year loan term.
There’s always time to explore your options, even if the clock is ticking. Here’s how.
Compare mortgage and refinance rates (Aug 19th, 2021)
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How to shop for mortgage rates: Key takeaways
To make sure you get the best deal, follow these five simple mortgage shopping tips:
- Don’t use advertised rates to choose a lender. These likely won’t be the same as the rates you’re offered
- Don’t accept the first offer you get. You’ll almost certainly be leaving savings on the table
- Don’t take a recommended lender at face value. The best lender for a friend or family member won’t necessarily be your best
- Don’t borrow from your bank because it’s easy. Your current bank may or may not offer the best deal. You need to compare offers to be sure
- Don’t be afraid to negotiate. Lenders can often lower the rate or fees they initially offer
Keep these tips in mind and you could easily save thousands on your new home loan.
Get started mortgage rate shopping (Aug 19th, 2021)
How to shop for mortgage rates in 5 steps
Mortgage rate shopping isn’t hard, and it can easily yield thousands of dollars in savings.
In fact, research from Freddie Mac shows that borrowers can save $1,500 over the life of their loan by getting just one extra quote — and $3,000 or more by getting five quotes.
But you have to go about shopping for a mortgage the right way. There’s more to it than just comparing rates online. You need to be a strategic shopper and find the lowest-rate loan for your financial situation.
Here’s what to do.
1. Don’t use advertised rates to choose a lender
Plenty of banks and mortgage lenders show their current mortgage rates online. You could easily check these advertised rates in just a few minutes, choose the lowest one, and call it a day.
But it’s almost guaranteed this strategy won’t find you the best deal.
Why? Because advertised rates don’t reflect your situation. In fact, online rates almost always represent a perfect borrower — one with excellent credit, low debts, and a 20 precent or larger down payment.
Unless you meet these criteria exactly, your own interest rates will be different from the ones you see online.
To find your ‘real’ best interest rate, you need to apply for rate quotes with at least 3-5 lenders. This involves filling out a pre-approval application and providing:
- Personal contact information
- Personal ID like a driver’s license or Social Security number
- Details about the property you’re purchasing or refinancing
- 2-3 months’ worth of bank statements
- Statements for retirement accounts, investments, and other assets
- W-2 or 1099 forms (for self-employed borrowers)
- Recent pay stubs
Your lender will also run a credit report and pull your credit score. Your credit history has a big impact on the rate you’re offered, so polish up your report and score before you apply if possible.
You can typically apply for a rate quote online, which makes this part of the mortgage process relatively quick and easy.
Start shopping for mortgage rates (Aug 19th, 2021)
2. Don’t accept the first mortgage rate offer you get
Even if you feel that time is of the essence, it’s important to see the rates other mortgage lenders come up with.
Interest rates and lender fees significantly impact how much you’ll pay, so it’s really important to make sure you’re getting the best possible deal.
Take a look at one quick example:
|30-Year Mortgage Rate||2.75%||3.0%|
|Monthly Loan Payment||$1,350||$1,390|
|Total Interest Over 30 Years||$140,900||$155,300|
Here, a 0.25% higher rate adds an extra $40 per month to your mortgage payment. That may not seem like much, but it amounts to over $14,000 extra if you stay for the full life of the loan.
You’ll kick yourself if you see a better offer after settling for a higher rate in a panic.
3. Don’t take lender recommendations at face value
Friends and family members may encourage you to work with their mortgage company if they had a good experience. But your circumstances may be different from theirs.
It’s fine to inquire with someone your family member or friend suggests, but explore other home loan options as well.
Your credit score may be better or worse, and you may be looking for different loan products. Depending on a lender’s priorities — they all favor certain types of borrowers — it might not be as competitive for you as for your friend.
Lenders often mention the types of loans and special mortgage programs they offer on their websites, so dig around a bit before applying.
4. Don’t default to your bank because it’s easy
Sure, it might be nice to keep all your finances under one roof. But if your current bank doesn’t offer you the best rate and overall deal, or it doesn’t have the right loan program for your needs, you’re better off taking out a mortgage with a different lender.
Big banks may also take longer to process applications, and they often keep traditional work hours which may not align with your schedule.
An online lender might offer more flexible customer service options. Not to mention, digital lenders often have faster turnaround times on mortgage applications.
By all means, see what your bank can do for you. Just don’t think you’re obligated to stick with them for your mortgage.
Many banks will sell your loan to a mortgage servicer anyway, so you wouldn’t end up working with them over the life of your home loan.
5. Don’t be afraid to negotiate
Believe it or not, lenders have control over the rates and fees they offer — and they’ll often negotiate to get your business.
Let’s say Lender A gives you a lower rate, but Lender B has far lower upfront fees. There’s nothing to lose by showing Lender A the competing loan offer and asking if they can match or beat it.
Even if a lender can’t go much lower on the rate, they may be able to provide other discounts or incentives that make the loan worth it.
A lender could potentially lower your origination fee, for example, which could reduce your closing costs significantly.
Find your best mortgage rate. Start here (Aug 19th, 2021)
Hot to be a fast, efficient rate shopper
Now let’s talk about smart rate shopping moves.
- Ask your real estate agent for recommendations. Real estate agents often have the inside scoop on which lenders work best for different types of buyers. They can give you several names to contact, as well as background information on each lender and reviews from clients who have worked with them previously. They may be able to provide insights into the level of personalization or customer service each lender provides
- Use online comparison sites to shop multiple rates at once. This is a quick way to get several quotes — but make sure you screenshot or save a copy of your results. The lenders may be required to stick with the offers you get, so you want proof of what comes up
- Apply with several different types of lenders. In addition to banks, consider applying with credit unions and online lenders. This is especially helpful if you’re struggling to get approved or find a good rate. Alternative lenders, such as mortgage startups, may have more flexible loan programs to help you get approved with an affordable loan. They may also waive origination fees or other upfront costs in order to make their offers more attractive
- Ask questions if you’re unclear about offer details. When lenders make you an offer, they’ll give you a Loan Estimate document that lists your loan amount, interest rate, prorated property taxes, homeowners insurance, closing costs, and other important information. If anything seems off or unclear, speak up. You want to be certain you understand the details before making such an important decision
Yes, it takes some work to find the best mortgage rate. But the time and effort you put in should pay off nicely.
There could potentially be thousands of dollars worth of savings on the line. So the time you spend searching for a lower mortgage rate could net the best hourly rate you’ll ever earn.
When can I lock a mortgage rate?
You might be able to lock in your rate after getting a mortgage preapproval. However, most lenders will require you to find a property and submit a fully signed purchase agreement before you can lock.
If you are refinancing, you can lock as soon as you’re approved because the property is already identified.
Locking in means your rate can’t rise or fall — regardless of what markets are doing — as long as your loan closes within the set rate lock period.
Keep in mind that the rate and loan terms on your pre-approval letter are only binding if the lender can verify all your finances in underwriting. If the underwriter turns up anything amiss, the offer may be subject to change.
In this case, your loan officer or mortgage broker would walk you through the next steps required to get re-approved and lock a rate.
How is my mortgage rate determined?
Your interest rate depends on a number of personal factors like your credit score, debt-to-income ratio, down payment amount, and financial history. Your rate also depends on the details of your mortgage loan, including the loan type, loan term, and whether it’s an adjustable-rate mortgage or fixed-rate mortgage. Finally, your rate will be affected by the overall economy and which lender you choose to work with.
What do you need to know when you shop for a mortgage?
There are 3 key things to know about mortgage shopping. First, advertised rates are not a good comparison tool because they likely won’t reflect the rate you’re offered. You need to actually apply with a lender to know your real rate. Second, lenders set their own rates and fees. So you might have leverage to negotiate a better deal if you get more than one rate quote. Third, advertised rates often include discount points. Points are an extra fee you pay upfront to lower your mortgage interest rate. And while they aren’t a bad thing, they can make certain rates look artificially low. So pay special attention to whether or not your quoted rates include points.
When should I start mortgage shopping?
Ideally, you should get preapproved for a mortgage loan before you start looking for a home. That way you’ll know your price range and have a good estimate of your future rate and monthly payment. However, you don’t need to start comparison shopping until you have a purchase agreement in place. At that point, you can get finalized mortgage rate quotes based on your actual property price and loan terms.
How many places should you shop for a mortgage?
Most experts recommend shopping with at least 3-5 mortgage lenders. Research from Freddie Mac suggests homeowners save $3,000 on average by comparing at least 5 lenders. But there’s no maximum. The more places you shop for a mortgage, the more likely you are to find a lower interest rates and/or cheaper closing costs.
Can I have two mortgage offers?
Yes. You can get as many loan offers as you want. You are not legally obligated to follow through with a loan until you’ve signed the final closing documents, so there’s no harm in getting multiple quotes. Many lenders offer free preapproval, too, so cost shouldn’t be a big concern. But ask about an application fee before getting preapproved just to be sure.
Does shopping for a mortgage hurt your credit?
Lenders do a hard credit pull when you apply for a rate quote, which typically dings your FICO score by five points or less. But as long as you get all your mortgage quotes within a 15- to 30-day window, the credit bureaus will count these pulls as one single inquiry. So your score won’t be dinged multiple times.
What credit score is needed for the best mortgage rate?
The best mortgage rates typically go to borrowers with a credit score of 720-740 or better. Since mortgage rates are based on credit tiers, even raising your score just a few points can sometimes earn you a better rate. For instance, boosting your FICO score from 735 to 740 before home buying could make a big difference in your rate and monthly mortgage payment.
What’s the difference between interest rate and APR?
Your mortgage interest rate represents the annual cost of borrowing money from a lender. Annual percentage rate (APR) is a broader measure that represents the total cost of a home loan, including yearly interest as well as all your upfront fees. These costs are represented as an annual percentage of the loan amount, assuming they were to be spread over the full loan term.
What type of mortgage has the lowest rates?
VA loans typically have the lowest interest rates. Mortgage rates on other government-backed loans, including USDA and FHA loans, are often below-market too. But these types of mortgages come with mortgage insurance payments that increase the overall cost. Conventional loans typically have the best mortgage rates for borrowers with strong credit and large down payments (or plenty of home equity, in the case of a mortgage refinance).
Do first-time home buyers get lower mortgage rates?
Typically, no. Interest rates for first-time home buyers are usually the same as for repeat buyers or refinancing homeowners. Some specialized first-time buyer programs do offer lower rates, but these are typically accompanied by private mortgage insurance (PMI). So the savings might be balanced out by the additional monthly PMI cost.
Today’s mortgage and refinance rates
If you’re here, you probably already know that mortgage and refinance rates are near all-time lows.
This is a rare opportunity to lock in a historic rate before they rise again.
Just make sure you explore all your options because the first rate you’re offered is hardly ever the best deal.
Luckily, online rate quotes and digital lending make it easy to find a low rate fast. So even if you’re in a hurry to lock, you still have time to shop.
Verify your new rate (Aug 19th, 2021)