If you’re looking for the best mortgage rate for buying a new home or you’re considering refinancing, you’ve probably heard that you should shop around to find the best mortgage rate. While that’s certainly very good advice, a question that many consumers have when told this advice is simply this; what exactly does searching for a mortgage rate entail, how is it done and how do you know when you’ve found the best rates?
Today it’s much easier to shop around and search for the best mortgage rates due to the advent of the Internet of course. When you first start your search one of the most important pieces of information that you need to have is your credit report and your credit scores and ordering a copy online is the easiest way to get them.
Have your credit report ready.
In most cases it’s better to have your credit scores ready and be able to share them with each lender that you talk with rather than having those lenders pull up your credit report and scores on their computers every time that you talk with a new one. The reason for this is that it can actually lower your credit score even though you haven’t actually done anything yet.
Narrow down your search to 2 or 3 lending institutions.
Recommendations from family, neighbors and friends about a good lender can be helpful at this point and, once you’ve narrowed your search down to 2 or 3 lending organizations, it’s time to compare their rates against each other. Keep in mind that when looking for a good rate you also need to know what you are spending limit is going to be.
Use your budget to help determine what you are best rate actually is.
By creating a budget (or using the budget that you already have) you can more easily decide on the maximum rate that you will be able to afford.
What you want your lender to be able to do is, using conventional methods of financing, compare loan terms to help you make an educated decision about which best suits your budget and ability to pay. Once you find the best rate you’ll definitely want to lock it in with whichever lender you decide to go with so that it is guaranteed. (A lot of the success in finding a good rate depends on good timing.)
In most cases, once you lock in a alone you also agree that you’re going to purchase that loan within a certain period of time, usually 60 to 90 days.
Be prepared to take advantage of a great rate.
It’s helpful to be as prepared as possible when you’re searching for the best mortgage rate so that, if you find a rate that fits your budget, you’ll be able to take advantage of it right away. In some instances (although not often) rates may drop after you have already locked them in. It’s for this reason that, if possible, you should ask your lender for something called a “float down”. If you have a float down you will be able to take advantage of the lowered rate even if you have already locked in a higher rate. Keep in mind that the specifics of these types of contracts vary and make sure to completely read the fine print.
In also keep in mind that different lenders will have different rates depending on the type of mortgage that you are looking for. For example, if you are purchasing a new home you may find that one bank has the best rates while, if you’re looking for a refinance mortgage, that same bank may not be offering the best rate.
Make sure to ask about fees.
Different types of lending institutions also have different fees meaning that, when searching, you should check fees among Community Banks, credit unions and also from direct lenders. Asking about the types of fees that will be associated with your mortgage is also vital as, even though you may find a lower rate with one lending institution, if their fees are higher you may end up paying more for that mortgage than you would with a lender that has a higher rate but lower fees.
A loan preparation fee is used by some lenders and combines all of their fees into one set number, making it slightly more difficult to determine if their fees are comparable to another lender. If that’s the case it’s important to ask what it will cost in total to close out the loan.
Decide on a lender and on a closing date.
Once you’ve done all of your research, compared all of the lending institutions, found out as much as possible about their fees and have locked in your rate, the last thing that you’ll need to do is decide when you want your closing date to commence. If you’ve done your due diligence and asked all of the right questions, you should be just fine.
If you have questions about how mortgages work, how to set up a budget or financial questions in general, please let us know and will help you out with answers and advice as best as we can.