Need a Mortgage? Why and How You Should Shop Around
Buying a home is one of the biggest purchases of your life. Every bit of money you can save, without sacrificing, is worthwhile. One great way to realize substantial savings is taking time to find the best mortgage product.
Shopping around for your mortgage is important, but a survey by the Consumer Financial Protection Bureau (CFPB) found that nearly half of borrowers don’t do it.
Don’t become part of these statistics. Failing to shop around can make a huge difference in what you pay, especially over the life of a mortgage.
NOTE: Before you start shopping, it’s best to get a copy of your credit report at least six months in advance. This will give you an opportunity to correct any errors that may impact your eligibility for the best loans. Requesting a copy of your own report will not count against your credit rating.
Consider all aspects of potential loans
Do you want a 30-year, 15-year, or other loan term? You could, for instance, pay off a mortgage in 15 years instead of 30 years, without dramatically increasing your monthly payment.
Different loans will have different fee structures, potentially including loan origination/underwriting, broker fees, loan application fees and other closing costs. Be sure you understand these fees and compare “apples to apples” where loan fees are concerned.
In 2015, this process became easier with the CFPB’s Know Before You Owe mortgage initiative. Lenders are now required to use the same Loan Estimate form so you can make true side-by-side comparisons. (Learn more.)
Depending on how long you plan to stay in the home, lower fee loans may actually be a better deal, even with a higher interest rate.
Type of loan
Mortgage options include traditional (conventional) loans, FHA loans and other special programs for which you may be eligible. Some mortgages will reduce interest rates, fees, or even required down payment amounts. Compare both fixed-rate to adjustable-rate mortgages.
Make lenders compete
Make no secret of the fact that you are shopping for the best rates. A competitive environment often yields lower prices in all arenas. Let that fact from Economics 101 work for you.
Once you have an offer in hand, you are not necessarily “stuck” with it. The loan originator may be open to reducing fees or offering a lower interest rate.
You may even be able to leverage offers from other lenders to get reductions. “I have a loan offer from XYZ bank for a .75% lower interest rate, but I’d prefer to work with you. Can you match that?”
Other questions to consider:
Will shopping for a mortgage hurt my credit score?
No. Previously, multiple inquiries from lenders could harm your credit rating, but today’s credit rules specifically protect individuals shopping for the best mortgage rate. The impact on your credit score is negligible. Shopping for a mortgage is a good fiscal move. Credit companies know this.
When you shop for a mortgage with multiple lenders, the credit bureaus count them all as a single credit inquiry, since you are only securing a single mortgage…a single debt.
Just be sure to keep your inquiries within a 14-day period to ensure they are all are counted as one. Some agencies allow longer timeframes, but the 14-day span will keep your score safe.
That said, inquiries by credit card companies to establish new lines of credit CAN hurt your credit score because they represent a potential liability that can grow over time and impact your ability to make payments. Similarly, hold off on major purchases like a new car or kitchen appliances until after closing!
Where should I shop for mortgages?
Your Accredited Buyer’s Representative can suggest local providers with solid reputations for providing good service, helping you secure your mortgage and reach the closing table as smoothly as possible.
Other sources include your current bank, other banks, mortgage companies and online lenders. Just be sure that whichever provider you select has a good customer service track record.
After all, if a lender doesn’t deliver as promised, you’ll risk running into new headaches and costs, potentially jeopardizing plans to close on your new home.
So, shop away! Find the best rate and the lowest possible fees from the best possible lenders. Even a rate that’s half a point (.5%) lower can save you thousands of dollars during the repayment period.