When should you shop for mortgage rates as a home buyer?

How and when to shop for mortgage rates

You’ll often see advice for home buyers saying to “compare lenders” or “shop around for your rate.” While this is great advice, for sure, it leaves out two important details: When exactly should rate-shopping happen? And how do you do it?

Mortgage expert Ivan Simental tackled these questions in a recent episode of The Mortgage Reports Podcast. Here’s what he had to say — and how to do your rate-shopping right.

Listen to Ivan on The Mortgage Reports Podcast!

When to shop for your mortgage rate

There’s no hard-and-fast “right” time to shop around and compare lenders. If you want the smoothest home purchase, though, Simental says it’s best to take this step early — before you begin shopping for a home. That way you’ll have financing lined up and ready to go when you find the house you want.

“Do it in the beginning, so that when you’re under contract, you’re not out there speaking to other lenders, trying to get other rates during the contract,” he says. “Remember, time is of the essence when you are under contract. You need to make sure that things get done in a timely manner.”

Benefits of shopping for a mortgage rate early

Choosing a lender and getting preapproved before you house hunt doesn’t just help you find a low rate. It can also make it easier to close on the sale.

Some lenders offer “verified” or “fully underwritten” preapprovals. These let you complete most of the application process early on, so your loan can close faster once you’re under contract — which might make your offer more attractive to sellers and give you an edge over the competition. You can ask lenders about this option when you’re getting quotes and comparing rates.

Shopping around when you’re under the pressure of a sales contract can also make things feel rushed and stressful. It could even put your earnest money deposit at risk or, worse, your dream house entirely.

“If you’re out shopping for rates, and this takes you a week, that is five days that you’ve lost on your purchase contract,” Simental says. “This could make you lose your earnest money deposit. This can make you lose the deal. This can make you not buy this house.”

How to shop for mortgage rates

Shopping for mortgage rates can be quick and painless. What you need to do is get prequalified or preapproved by a few different lenders. Most experts recommend comparing three quotes at a minimum.

To get a rate quote, you’ll need to complete a short application, which most lenders offer online. For a preapproval (the most accurate estimate of your rate and home buying budget), lenders will request a few supporting documents like paystubs and W-2s. Be prepared to show:

• A valid ID
• Proof of income (tax forms, paystubs)
• Proof of assets (bank statements, investment account statements)

If you’re just looking for fast rate estimates to compare, you could get prequalified instead of preapproved. The prequalification process is quicker because you don’t have to provide documentation. But be aware that the quoted interest rate and loan amount you receive may not be quite as accurate.

One last thing: Don’t worry about multiple preapprovals hurting your credit score. Each lender will run a credit check; but as long as you get your quotes within two weeks of one another, the credit bureaus will view them all as a single application.

Tips for comparing loan offers

When you start shopping for a mortgage, pick at least three lenders to compare. And as Simental puts it, “Compare apples to apples.” Get quotes for the same type of loan program and make sure it includes the “par rate,” as Simental calls it (meaning no discount points added in).

“This is so important because oftentimes we’ll be comparing one rate versus another rate, and one is giving you discount points and one isn’t,” Simental says. “So, obviously one is going to be a lot higher than the other.”

You should also consider the loan officer you talk to and how capable you feel they are. Did they ask you about your plans for the home or how long you hope to be there? Did they inquire about your budget or long-term goals?

“If they’re not asking you all these questions, then I don’t think that this loan officer is for you,” Simental says. “They need to know your specific situation. They need to know what you’re going to be doing with this house. If they’re not breaking it down to you and giving you multiple options, then I suggest you find another one.”

Your next steps

If you have other questions about the rate-shopping process, reach out to a mortgage lender, loan officer, or mortgage broker. They can give you guidance based on your specific situation.