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A house isn’t the only thing you should shop for in your homebuying journey.
If you’re new to homebuying, you might not think about talking to more than one mortgage lender. But that’s the recommended method when deciding how to finance your home purchase.
Compare rates from different lenders the same way that you would compare prices of cars, or any other major purchase.
The interest rate you get with your mortgage is going to stick with you for the duration of your loan. A high or low interest rate could mean a difference of thousands of dollars a year.
Let’s go over things to look for in your lender and how to shop for the lowest mortgage rate.
What is a low mortgage rate?
Your mortgage rate is the percentage of your loan that you’ll be paying in interest over time, so you’ll want to consider it carefully. You pay the interest rate to the lender in exchange for the financing they lend you to purchase your home.
If a lender offers a 0.25% higher rate than another lender, that could add an extra $40 per month to your mortgage payment, amounting to over $14,000 paid in interest on your loan over 30 years.
That may not sound like a big deal to some but if you’re looking to buy a home as affordably as possible, that interest rate makes a difference.
To figure out if the rate you’re offered is low, look at what the average market rate is during that time. If it’s higher than average, you may not be getting the best deal or you may have certain qualifying factors that impact the rate you’re eligible for. But if it’s lower, that lender should be a contender.
Current market rates can be easily found online and will give you a ballpark number to look for.
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Shopping for your best rate
There are many steps that you can take — both before and during — your shopping experience, that will likely get you the lowest mortgage rate. This involves research, preparation, and comparing lender products.
Prepare your documents
To offer you the best rate, lenders will need to figure out your Debt-To-Income ratio*, your financial standing, and if there is any risk to your loan. Have the following documents ready:
- General information: Information about the mortgage you’re applying for, ID’s of borrowers, employment information, asset and liability information
- Income verification: W2’s, pay stubs, tax returns, alimony or child support records
- Asset and debt statuses: Bank statements, investment account statements
- Credit verification: Letters of explanation for any judgments or missed payments, bankruptcy papers (if applicable), additional payment statements if credit history is short
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
Take credible recommendations
Mortgage scenarios and financial situations are unique, so any recommendations from friends or family might not be the best for you. Your credit score may be better or worse, and you may be looking for different loan products. You can get an idea from others of where to start but what works for some may not work for you.
Consider recommendations from your real estate agent. They can often provide insight on which lenders work best for different types of buyers. It’s also likely that they’ll have heard from previous clients what each lender is like to work with. If they tell you that your lender hasn’t had great reviews in their personalized service, that might be a clue to look elsewhere.
Homefinity prides itself on a humility-first approach with its clients. Our loan officers provide consistent and honest communication so that you aren’t left wondering whether you’ve made the right choice.
Apply with multiple lenders
A general guideline is to apply with at least three mortgage lenders. Each one will give you a loan estimate form that details the costs of your loan. To best compare them, apply to the different lenders on the same day. Mortgage rates change daily so you’ll want to get an accurate picture of how the lenders compare.
You should also compare any other fees, costs, or discounts associated with their loans. Online comparison websites are available so that you can easily look for the lowest mortgage rate among common lenders.
Your bank isn’t necessarily the best
Don’t go with the easy solution (your bank), go where the rates are the lowest.
Most banks sell their loans to a mortgage servicer, so the loyalty you might expect from your bank isn’t a factor over the course of your loan.
At Homefinity, your dedicated loan officer will work with you one-on-one to get in a home you love, with a loan you can afford. You’ll know to expect the same great service and officers every time you work with us.
Negotiate for a better rate
Loan rates can be negotiable, as lenders are often able to get you a better rate to keep your business. If you got a better rate somewhere else but you’d really like to work with a specific lender, it doesn’t hurt to show them the other quote and see if they’ll match or beat it.
Homefinity, for example, will work to get you the best custom mortgage rate that works for you.
Ask all your questions
This is an important rule for every major life decision. Asking for clarification can help you make sure you’re getting what you want and need out of your mortgage.
If you don’t understand something, speak up. There could be a typo or mistake, or maybe even something your lender failed to discuss with you. Be clear and confident with this decision by having all of the answers.
This is why Homefinity insists on providing prompt and transparent responses so that you’re not left in the dark about what matters most.
Decide on a fixed-rate or adjustable-rate mortgage
With a conventional loan, there are two types of rates — fixed or adjustable. These two types are exactly what they sound like, and the best option depends on your situation.
Adjustable mortgage rates will offer a temporary, lower rate for the first 5-7 years and then fluctuate depending on the market.
Learn about points
You can pay to reduce the rate of your mortgage by using discount points. Paying one point, or 1% of the loan amount, will typically reduce the mortgage rate by around 0.25%. If your rate is 4.5%, paying two points, or $2000, would reduce the rate to 4.25%.
The downside is that you’re paying a few more thousand dollars upfront to save money every month. It takes, usually, around 7-9 years for you to “break-even,” and save more than you initially paid.
Make the best decision for the lowest mortgage rate
There’s a lot that goes into making sure you get the best mortgage rate. After all, this is something that will affect the entirety of your loan and you want to make the right choice.
At Homefinity, you’ll work with a dedicated loan professional who wants to help you get the best rate possible. On average, our loan officers have at least 15 years of experience and know how to help you navigate the mortgage process. If you’re ready for pre-approval or simply have questions about starting your journey, reach out to Homefinity today. We’ll discuss your needs and provide our best recommendations on the most affordable loan for your situation.