How to shop for a mortgage: Don’t be intimidated into paying too much

Shop for a mortgage the smart way

Many homebuyers find mortgages to be intimidating and uncomfortable. After all, when you shop for a mortgage, you compare numbers you’re probably not used to looking at. And when you apply, you submit your most private information to strangers, who will judge your fitness for homeownership.

Yikes.

But don’t let fear push you into accepting the first offer that comes your way, or cause you to take a more expensive home loan simply because it’s advertised as being fast or easy. Play your cards right, and any mortgage can be fast and easy — and cheaper.

Step 1: Know yourself

When negotiating for a mortgage, it helps to know your credit score, how much you can put down, and what kind of property you want. Lenders need this information to provide an accurate quote.

• Get your free credit report and purchase inexpensive FICO scores at www.annualcreditreport.com, the government-authorized site. Other sites may sell your information or try to get you to purchase credit monitoring services.
• Determine how much money you have for a down payment. The size of your down payment dictates the cost of your mortgage insurance (if applicable) and other fees.
• Indicate what sort of property you want. Condos and manufactured homes can cost more to finance than traditional single-family houses. And rentals and vacation properties carry higher rates than primary residences.

Once you have this information, provide it to any lender you contact. Don’t authorize another credit report until you know who you want to work with.

Step 2: Gather loan quotes as quickly as possible

Your next step is to contact a few competing mortgage lenders, provide them with the information listed above, and get mortgage quotes. Ideally, you’ll get this information on a Loan Estimate form, which binds the lender to some extent. Alternatively, you may be given a worksheet or scenario. That may be okay as long as the lender honors it.

Shopping for a mortgage: How many quotes do I need?

The important thing is to request your quotes so that they come in as close to simultaneously as possible. That’s because mortgages are financial vehicles and investors buy them like they do stocks and bonds — they can change all day long like stock prices. So you can’t really compare a Monday afternoon quote to a Wednesday morning quote.

To make things easier, ask each lender for a quote with a given price — say a 1 percent origination charge and no additional loan fees — or a given rate — say 4.5 percent. Then, you only have one figure to compare among them, either the rate you get for a given price, or the price you pay for a specified rate.

Step 3: Go through offers carefully

The next step is to gather your quotes and determine which lender has the best offer for you. The Loan Estimate form shows the fees charged, the program selected, and the interest rate.

Shop for mortgage rates without lowering your credit score

It really doesn’t matter what they call the charges. Just go to the bottom line. You’ll also want to see what they include in third-party charges like appraisals and title insurance. You can’t shop for your own appraiser, but in many states, you can shop for title insurance and escrow services, and prices can vary a lot.

Step 4: Choose your lender

Take a couple of the best offers and contact the lenders. Your goal here is to determine who you want to deal with. This is the stage in which “fast” and “easy” become important. Note the following:

• How long did it take for the lender to return my call/email?
• Does the loan officer or broker explain programs and costs in an easy-to-understand way?
• How long will it take my loan to close?
• Is this person’s communication style good for me, or does he/she get on my nerves?
• Do I trust this person?

The mortgage professional handling your file can make the process a breeze or a nightmare. Trust your gut.

First, fastest or easiest can also be very expensive

Mortgage interest rates can vary wildly, from .375 to .625 percent. That translates to 1 to 2.5 percent in extra fees, or $2,000 to $5,000 on a $200,000 mortgage.

4 ways to get a better mortgage rate quote

Most of us would consider spending an extra 15 to 30 minutes to save $2,000 to $5,000 a good investment.

One more benefit to shopping: empowerment

In addition to saving money, shopping for a home loan provides a couple more benefits. You can be sure that you’re not being discriminated against or taken advantage of when several lenders are competing for your business.

And you learn a little about mortgages, which should increase your confidence and set you up for successful homeownership.

What are today’s mortgage rates?

You can find today’s mortgage rates and lock recommendations on the Mortgage Reports every day. That shows you an average of offers, and you’ll know if a lender’s quote is higher or lower.

Studies by HUD and Stanford University, among others, show that by checking with several lenders, you can be confident of getting a better deal. Knowledge is power.