Shopping Around for Your Mortgage
You wouldn’t buy a new mattress without first trying out a few, right? You’ll maybe lay on a couple and talk with the sales representative to get details on pricing and what’s included. Well, the same goes for getting a mortgage. If you want the best product at the best price, you have to shop around. Shopping around for the lowest mortgage rate entails:
Researching and vetting potential mortgage lenders. You should consider customer service, ratings, consumer complaints (check the Better Business Bureau), and interest rates. Filling out the loan application for several lenders. This can include applying with a mix of banks, credit unions, and other mortgage companies. Comparing the fees of each to see which is the most affordable option. To do this, you’ll want to get a good faith estimate from each, which includes a full breakdown of fees, closing costs and other expenses the lender will charge.
Comparing multiple mortgage offers can save you big, too. According to Freddie Mac, homebuyers can save $1,500 by getting one additional mortgage quote, while buyers who get five or more quotes save around $3,000.
Tips for Getting the Lowest Rate
Though shopping around is a great way to secure a great rate, there are other steps you can take to lower your homebuying costs, as well. To ensure you’re getting the lowest mortgage rate possible, consider:
Working on your credit score. Your credit score plays a big role in the rate you qualify for. Work on paying down your debts, settling any collections and paying your bills on time to increase your score. Increase your down payment. The bigger down payment you offer, the less of a risk you are to a lender—and the lower the rate they can offer you. Pay points to lower the rate. You can pay upfront to buy discount points in order to secure a lower mortgage rate. Just make sure the break-even point makes sense for your goals. (If it costs $2,000 to lower your rate 0.5 percentage points, make sure you’ll be in the home long enough to get that $2,000 back in interest savings). Go for a shorter-term loan. Shorter-term loans come with lower rates because they pose less of a risk to lenders. Rather than a 30-year loan, consider a 20- or 15-year one instead.
You can also consider an adjustable-rate mortgage if you want to secure a lower rate. Just remember, the rates on these can fluctuate after a certain period of time. Make sure you understand the terms of the loan and that it aligns with your long-term goals and financial plans.
Lock Your Rate
Once you’ve secured a rate you’re happy with, you can lock in your rate for a set period of days. Most lenders offer 30-day rate locks for free, with longer rate locks available at an additional fee. These locks guarantee your quoted rate for the entire period, meaning you must close on your home within that timeframe in order to keep the rate. If you go beyond the rate-lock period, you will need to extend it (for a fee) or the lender will reset your rate based on the current marketplace.
