Sunday, July 14, 2024

How To Shop For A Mortgage

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To Recap Here’s How To Shop For Mortgage Rates:

How to Shop for a Mortgage as a First Time Home Buyer
  • Get your finances in order
  • Determine how much of a mortgage you can afford
  • Contact different lenders
  • Compare your offers to find the best one

Whether you’re a first-time home buyer or you’re an experienced refinancer, it pays to do some mortgage shopping before accepting an offer. Follow these steps to increase your chances of coming away with the best mortgage option for you.

When Can I Lock A Mortgage Rate

You might be able to lock in your rate after getting a mortgage preapproval. However, most lenders will require you to find a property and submit a fully signed purchase agreement before you can lock.

If you are refinancing, you can lock as soon as youre approved because the property is already identified.

Locking in means your rate cant rise or fall regardless of what markets are doing as long as your loan closes within the set rate lock period.

Keep in mind that the rate and loan terms on your pre-approval letter are only binding if the lender can verify all your finances in underwriting. If the underwriter turns up anything amiss, the offer may be subject to change.

In this case, your loan officer or mortgage broker would walk you through the next steps required to get re-approved and lock a rate.

How High Does Your Credit Score Have To Be To Qualify For A Mortgage Loan

Technically, you can qualify for a loan with a credit score as low as 550. However, most mortgage companies will not lend to someone with such a low score. This makes you a huge credit risk, and the truth is, lenders dont want to do foreclosures if they dont have to.

Assuming that you will get approved if you have the bare minimum score is not a good way to go rate shopping. In fact, its a bad way to work with most personal loans, too. If you want to get the best rates and ensure that you will be approved, you should try to clean up your finances as soon as possible.

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Dont Be Afraid To Negotiate

Believe it or not, lenders have control over the rates and fees they offer and theyll often negotiate to get your business.

Lets say Lender A gives you a lower rate, but Lender B has far lower upfront fees. Theres nothing to lose by showing Lender A the competing loan offer and asking if they can match or beat it.

Even if a lender cant go much lower on the rate, they may be able to provide other discounts or incentives that make the loan worth it.

A lender could potentially lower your origination fee, for example, which could reduce your closing costs significantly.

Start Shopping For A Car

Shopping for a Mortgage: 4 factors to consider apart from the Rate ...

Once you have been pre-approved, you can start the fun part of the processshopping for a new car.

Take the time to look for the best car available, and donât be afraid to negotiate a lower price. When you are able to secure your own financing, you may be able to get a better price because you have leverage and arenât depending on the dealership for financing.

When shopping for a car, you may be tempted to trade in your old car, but it will likely be more financially beneficial to sell your old car on your own and apply those funds to your new down payment. You also shouldnât roll your current loan into your new one. This will likely cause you to go upside down on your new car, which means youâll owe more than itâs worth.

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Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.

How To Shop For Mortgage Lenders And Financing Options

Securing a mortgage loan doesnt have to be challenging. In fact, with so many potential lending options available, your biggest challenge may be picking the right lender and program.

That said, a home loan remains a large financial commitment for millions of people of all backgrounds and circumstances. Its often one of the largest investments that youll make in your lifetime. Noting this, it pays to do your research before picking a lender and applying for a loan product, to make sure youre selecting the best fit for your circumstances and budget.

Ready to get started? Following the below steps can help speed you along in your research.

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How To Shop For Mortgage Rates: Key Takeaways

To make sure you get the best deal, follow these five simple mortgage shopping tips:

  • Dont use advertised rates to choose a lender. These likely wont be the same as the rates youre offered
  • Dont accept the first offer you get. Youll almost certainly be leaving savings on the table
  • Dont take a recommended lender at face value. The best lender for a friend or family member wont necessarily be your best
  • Dont borrow from your bank because its easy. Your current bank may or may not offer the best deal. You need to compare offers to be sure
  • Dont be afraid to negotiate. Lenders can often lower the rate or fees they initially offer
  • Keep these tips in mind and you could easily save thousands on your new home loan.

    Get Your Finances In Order

    How To Choose The Best Mortgage Lender (First Time Home Buyers)

    Your goal should be to secure the lowest mortgage rate possible. The stronger a home loan candidate you are, the more likely you are to get a great offer from a mortgage lender.

    Before getting started, make sure you have:

    • A strong credit score, or FICO® Score. 620 is generally the minimum . To get a great rate, you’ll generally need a score in the mid-700s or above.
    • A low debt-to-income ratio — you don’t spend most of your income on debt payments.
    • Funds available for a down payment

    If you’re a borrower who does not tick all these boxes, you may still qualify for a mortgage. However, you’ll want to look for a low down payment loan or a mortgage for bad credit.

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    Tip : Ask Questions If You Dont Understand Loan Features

    Ask the lender to fully explain the loan program that is being offered to you if you dont understand all its features.

    To help you weigh the pros and cons of your mortgage options, consider working with a housing counseling agency. A HUD-certified housing counselor can be an objective advisor and guide you in considering lenders and mortgage options.

    For more information and tools about buying or refinancing a home, visit My Home by Freddie Mac®

    Make Your Mortgage Loan Selection

    After receiving a response from your lenders on negotiations, its time to compare the final offers again and decide on which mortgage to go with. After selecting the best mortgage for you and your budget, contact the lender and let them know that youre ready to move forward and sign the deal. Theyll put together a timeline and typically work with a title company to build out a closing statement and get you into your new home.

    Because buying a home is one of the biggest investments youll ever make, having expert advice in your corner can make a serious difference. Our guide for first-time home buyers can help shine a light on each of the steps involved in purchasing a home.

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    Learn About Mortgage Programs

    There are four standard loan programs to choose from for most mortgage borrowers: conventional, FHA, VA and USDA. To get the best rates and increase your odds of a simple approval process, you should only apply for the mortgage program that suits your financial circumstances. Choosing the wrong loan program could waste valuable time and money, and may even result in a mortgage denial.

    The table below shows the minimum mortgage requirements for down payment, credit score, debt-to-income ratio and loan limit so you can get a side-by-side comparison of the programs:

    Loan type
    3.5% 43%

    *Based on 2022 for a single-family home. **Based on 2022 for a single-family home.

    How To Shop For A Mortgage

    Shopping For Your Best Mortgage Quote

    When shopping for a mortgage, wed encourage you to compare mortgage quotes from different mortgage lenders. The easiest way to do this all at once is to submit an anonymous loan request on Zillow. You will get real-time, customized mortgage quotes back from many different lenders. Youll be able to sort and filter your results based upon what matters most to you. Even if you go through a more traditional route such as a local bank or a personal recommendation through your real estate agent or friend, wed encourage you to compare the quote you receive to the quotes on Zillow to ensure you are getting the best deal possible.

    Aspects that you should pay attention to while shopping for a mortgage:

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    Review Your Credit Report

    Lenders will also review your credit reports, which are documents that capture the details of your credit history. Many consumers have a credit report with each of the three major credit bureaus.

    Your credit report includes a list of credit accounts opened in your name, such as credit cards and student loans, plus the following:

    • Payment history
    • Whether the account is in good standing

    Lenders use the information in your credit report to:

    • Find your monthly financial obligations, which impacts your debt-to-income ratio
    • Look for signs of loan delinquency, such as missed payments
    • Check for red flags, such as bankruptcy or foreclosure


    So, before applying for a mortgage, check your credit reports and dispute any mistakes. You can pull your credit reports for free once a year at

    Consider Different Rate Scenarios

    It helps if you go into the mortgage application process with some idea of how different interest rates will affect your monthly payments, as well as your ability to afford those payments.

    You can use a mortgage calculator to get a payment estimate at different rates. Start off with the advertised rates of the lender youre considering, then see how a change both higher and lower of an , a ¼ and ½ of a percent makes.

    Remember that a calculator, while useful, can only give you an estimate. The actual rate you qualify for will depend on the lender, your credit score and other financial information. As a backup, ask your lender to also run the numbers and to lay out different rates and payment scenarios.

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    How To Shop For Mortgage Rates In 5 Steps

    Mortgage rate shopping isnt hard, and it can easily yield thousands of dollars in savings.

    In fact, research from Freddie Mac shows that borrowers can save $1,500 over the life of their loan by getting just one extra quote and $3,000 or more by getting five quotes.

    But you have to go about shopping for a mortgage the right way. Theres more to it than just comparing rates online. You need to be a strategic shopper and find the lowest-rate loan for your financial situation.

    Heres what to do.

    Look At Different Types Of Lenders

    How To Shop For A Mortgage And WIN

    Loans will generally be offered by different types of lending institutions each of which comes with their own upsides and benefits. Common providers that offer home mortgages include:

    • Banks: Which may offer local and physical branches to pop into and more personalized customer service.
    • Which may offer lower rates, more favorable loan terms, and other benefits in exchange for membership.
    • Online lenders: Firms that can quickly pair you with a competitive range of loan products, though they often dont maintain a brick-and-mortar presence.
    • Financial technology providers: Which often cut costs and fees on loan products thanks to technology-powered efficiencies, but the quality of customer service may vary.

    As you go about reviewing your options and contemplating which to work with, youll want to consider factors like:

    • Interest rates, loan fees and various service or prepayment charges
    • Types of mortgage and loan products offered, including bundling options
    • Mortgage terms and conditions, including but not limited to proposed loan term length
    • How challenging or complex their mortgage preapproval process is
    • Different methods and quality of customer service and interaction offered

    At Rocket Mortgage, we prioritize client satisfaction – so much so, that we’ve taken home the J.D. Power Award for Primary Mortgage Servicing for the eighth consecutive year1.

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    Shop Around For The Best Rates

    It’s always ideal to shop around with mortgage lenders or brokers to get the best rates. This will require multiple lenders to access your credit report, which results in many credit pulls. However, most credit scoring models will group all the hard inquiries related to mortgages into one if you shop within a period of a couple of weeks.

    If you’re still not getting the rates you want, consider using a mortgage broker. They will shop your information around to a network of lenders who may be able to offer you more favorable loan terms. You may also secure a more competitive interest rate by providing a larger down payment.

    Reputability Of Your Lender

    Like everything else in life, there are good and bad lenders and the consequences of choosing poorly can be life-altering. Fraud is rampant in mortgage lending. Usually, such fraud comes from the boutique lender on the corner or the shiny looking online startup, but as we know from the recession of 2008, shady practices are not just limited to the new guy.

    With that said, generally larger companies are under greater exposure and scrutiny. And for that reason alone you can generally sleep better as a client of a larger corporation than a cut-rate mom and pop lending shop. The following resource can help.

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    How Many Mortgage Quotes Should You Get

    You can apply for a mortgage with an unlimited number of lenders, but at a minimum, you may want to consider getting three to five mortgage quotes. The more quotes you get, the more money you can potentially save.

    A digital online pre-approval process like Mortys allows you to input specific information online. Youll find out quickly how much money you can borrow to purchase a home.

    Does Shopping Around For A Mortgage Hurt Your Credit

    Always shop around for the best interest rate and loan

    You might have already asked, “Will shopping for a mortgage hurt my credit?” prior to stumbling on this article. If so, good for you! You know you need to protect your credit at all costs.

    You can rest easy knowing that you can shop around for a mortgage without hurting your credit. In fact, you can consult as many lenders as you want as long as your last credit check occurs within 14 days of the first credit check. Optimal shopping period time frames are built around FICO® scoring models. FICO® gives you a 14-day grace period for mortgages when they go into one inquiry. In other words, FICO® treats similar loan-related inquiries within 14 days of each other as a single inquiry.

    For example, let’s say you shopped for a mortgage with five different lenders over a period of 14 days. FICO® would consider those five hard inquiries as one hard inquiry. A hard inquiry could lower your credit score by a few points. On the other hand, soft credit inquiries won’t affect your score.

    You might wonder what would happen to your credit score if you shopped beyond the 14-day time frame. After 14 days, new mortgage quotes will add a soft inquiry to your credit report. Try to avoid adding these inquiries to your credit report and do your shopping within the 14-day window.

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    Mortgage Rate Shopping Faq

    How is my mortgage rate determined?

    Your interest rate depends on a number of personal factors like your credit score, debt-to-income ratio, down payment amount, and financial history. Your rate also depends on the details of your mortgage loan, including the loan type, loan term, and whether its an adjustable-rate mortgage or fixed-rate mortgage. Finally, your rate will be affected by the overall economy and which lender you choose to work with.

    What do you need to know when you shop for a mortgage?

    There are 3 key things to know about mortgage shopping. First, advertised rates are not a good comparison tool because they likely wont reflect the rate youre offered. You need to actually apply with a lender to know your real rate. Second, lenders set their own rates and fees. So you might have leverage to negotiate a better deal if you get more than one rate quote. Third, advertised rates often include discount points. Points are an extra fee you pay upfront to lower your mortgage interest rate. And while they arent a bad thing, they can make certain rates look artificially low. So pay special attention to whether or not your quoted rates include points.

    When should I start mortgage shopping?How many places should you shop for a mortgage?Can I have two mortgage offers? Does shopping for a mortgage hurt your credit?What credit score is needed for the best mortgage rate?Whats the difference between interest rate and APR?What type of mortgage has the lowest rates?

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