What Is A Mortgage
When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage.
A mortgage is a legal contract between you and your lender. It specifies the details of your loan and its secured on a property, like a house or a condo.
With a secured loan, the lender has a legal right to take your property. They can do so if you dont respect the conditions of your mortgage. This includes paying on time and maintaining your home.
Unlike most types of loans, with a mortgage:
- your loan is secured by a property
- you may have a balance owing at the end of your contract
- you normally need to renew your contract multiple times until you finish paying your balance in full
- you may have to meet qualification requirements including passing a stress test
- you need a down payment
- you may need to break your contract and pay a penalty
- your loan is typically for an amount in the hundreds of thousands of dollars
How To Shop For Mortgage Rates: Key Takeaways
To make sure you get the best deal, follow these five simple mortgage shopping tips:
Keep these tips in mind and you could easily save thousands on your new home loan.
Request Multiple Mortgage Rate Offers
According to the Consumer Financial Protection Bureau, the agency responsible for mortgage lender oversight, failure to comparison shop for a mortgage costs the average home buyer approximately $300 per year and many thousands of dollars over the life of the loan. Get three or four quotes on the same day, to make comparisons easier, as interest rates can change daily. This will help you decide on a lender, and will also signal to credit reporting agencies that youre more likely shopping around than applying for four separate mortgages.
If you like one company but received a better quote from another, dont hesitate to tell the company you want to do business with to see if theyll match or beat it. Not only will you save money, youll also learn a little more as you grow comfortable asking about a variety of mortgage options.
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Get Your Credit Score In Check Before Mortgage Shopping
Before you begin to consider purchasing a home, you should check in on your credit score. The higher your credit rating, the better the odds of receiving affordable mortgage terms and a competitive interest rate. Youre allowed one free credit report per year, so check in with the major credit bureaus and download yours before applying for a mortgage.
Get And Compare Financial Information
Whether youre looking at a federal form called a loan estimate or a precursor form called the fees worksheet, youll see a breakout of closing costs, explains Koch. To compare the lender financials, youll want to drill down to origination charges in the lender section. Make sure youre comparing apples to apples. If one lender is offering a 30-year fixed rate at 2.875% with no lender fees and another is offering 2. 75% with $1,500 in lender fees, those are unlike products. Get the fees at the same rate to find out whos less expensive.
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What Affects Your Mortgage Rate
Besides the market and the current economic conditions of the country, your personal financial situation also impacts your mortgage rate. Your creditworthiness has a great impact on your rate. Things like your job history, FICO score, debt-to-income ratio, making on-time payments, and the length of open credit lines all have an effect on your mortgage rate because they all contribute to your creditworthiness. For example, in most cases, the better your FICO score, the lower your mortgage rate will be.
How To Shop For The Best Mortgage Lenders
In this blog, we will explain how to shop for the best mortgage lenders. The way to do comparative shopping of mortgage lenders can save you tens of thousands. Most people normally go with the first lender they contact. Mortgage rates vary widely between lenders. Mortgage rates even vary among independent P and L mortgage branch offices within the same mortgage company. For example, one branch of ABC Mortgage Bankers may have higher rates than another branch of ABC Mortgage Bankers. Why is it so? Branch managers can set their own margins on the back end which means higher mortgage rates to borrowers.
In this article
Final Thoughts On Buying A House
The steps to buying a house can make for a long overall process.
First, youll need to be ready to be a homeowner and set a budget. Next, youll work with a lender to get preapproved for a mortgage. Then, youll start shopping for properties, ideally with a trusted estate agent at your side. Once you find a home, your agent will help you submit an offer and negotiate with the seller.
When you reach an agreement, youll get an appraisal and inspection. If the inspection turns up a major issue, you may want to negotiate repairs or credits with the seller. Youll also do one more walkthrough in the house before you buy it. If everything looks acceptable, you can finally move to close and enjoy your new status as a homeowner.
Do you think you’re ready to buy a house? Contact Rocket Mortgage® today to get started.
Take the first step toward the right mortgage.
Apply online for expert recommendations with real interest rates and payments.
Shop Around For The Best Rate
The second step in ensuring you get the best rate available to you is to shop around. Make sure you compare the APR between lenders, not just the rate. The APR is the all-in total of your mortgage costs, which can vary by lender, and will include your closing costs if rolled into your loan.
You should compare offers from at least three lenders before making a decision. But when comparing the interest rate and APR, consider these two scenarios:
If you plan to stay in the home for an extended period, getting the lowest mortgage rate can be more important than paying the lowest closing costs.
If you dont plan to stay for more than a couple of years, you should look closely at the lenders loan estimates, which will show you the projected five-year cost. Choose the offer with the lowest initial price tag.
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Check Your Credit Reports
Before you get too deep into the mortgage application process, its a good idea to take a step back and check your credit reports first. The health of your credit will play a big part in getting a good deal on a home loan, or even getting approved at all.
Start by pulling your credit reports from each of the three major credit bureaus: Experian, Equifax and TransUnion. The easiest way to do this is by visiting annualcreditreport.com, the only website thats authorized by federal law to provide free credit reports once per year.
Next, review your reports to ensure there are no errors or accounts that arent yours listed that may have damaged your credit. For example, review your personal information such as name, address and Social Security number for accuracy. Also check that the credit accounts and loans listed on your reports have been reported properly, including the balance and status. Double-check that there are no mysterious accounts opened, which would signal possible identity theft.
If you find an error, you can dispute it with the bureau thats reporting the incorrect information by visiting its website. Once you submit a dispute, the bureau is required to investigate and respond within 30 days.
Use The Meeting To Learn
You can also use the meeting to clarify general info youve picked up online and talk about your concerns. DeMarco gives a couple of examples. You may have switched careers or industries in the last year or started having bonus or commission income. Your research may have shown you can just divide your salary by 12 to figure monthly income. But it may not be as simple as that.
Youll also want to bring up concerns like the impact on your credit score. Thirty-eight percent of buyers think comparing multiple mortgage offers in a short time will hurt their credit rating, according to a 2020 LendingTree survey. As long as the lenders all pull the borrowers credit within a couple of weeks, its counted as a single credit inquiry. So, its not a problem if they do it within a narrow band of time, Koch explains.
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How Can You Lower Your Mortgage Rate
If youre still shopping around for a mortgage and arent happy with the mortgage rate you were quoted, one option you have is to pay off some of your existing debt in order to lower your debt-to-income ratio and increase your FICO score. Both of those usually result in a lower mortgage rate.
If you already purchased a home and want to lower your mortgage rate, you may consider refinancing your home. Refinancing is a process whereby you replace your existing mortgage with a new mortgage with different terms. Refinancing may be a good idea for you if mortgage rates have gone down or your credit score has gone up. With refinancing, you may be able to qualify for a lower rate than you did when you got your mortgage.
Figure Out What You Can Afford
To effectively do your rate shopping, you’ll need to know how much of a mortgage to ask for. Use a mortgage calculator to crunch the numbers and see how much house you can really afford. You can put in various loan amounts and mortgage rates to run different scenarios. Your monthly payment will also depend on your loan term, which is the length of time you’ll take to repay the loan.
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Interview The Mortgage Loan Officer
Whichever way you choose, this meeting is prime time to interview the loan officer. Borrowers need to find someone who will be in there with them and can problem solve. We call unanticipated problems icebergs, DeMarco says. You think theres smooth sailing. And then, suddenly, you smack into an iceberg.”
Check out the lenders communication strategy and their process for delivering on time. The process is highly complex, and youd think professional lenders all would have mastered it. Thats not the case, says Koch. When a loan isn’t delivered on time, peoples finances and lives are basically balanced on the head of a pin, which is the closing date.
To avoid problems, ask questions like these:
Fact finding about the process:
- Would you take me through the process?
- What should I expect?
- What will I need to supply?
Compatibility with the loan officer or mortgage banker or broker:
- Whats your communication style? Are you willing to communicate virtually?
- When would I work with you? Are you available in the evenings?
- Will I be working with you or a member of your team?
- What do you think of my time frame to get to closing?
- What if any problems do you foresee?
Track record of loan officer and lender:
The Bottom Line: Let Us Help You Start The Mortgage Shopping Process Today
If youre ready to start the buying process, you can apply online with Rocket Mortgage or call our Home Loans Experts at 251-9080 to get started. If youre not quite ready to ask questions or apply just yet, keep reading about mortgages and buying a home in our Learning Center.
1 Participation in the Verified Approval program is based on an underwriters comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Quicken Loans control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Quicken Loans through a mortgage broker. Additional conditions or exclusions may apply.
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How Do I Shop For A Mortgage Loan
Shopping for your mortgage is as important as shopping for the right home. Some homebuyers simply accept the first mortgage they are approved for. Wise homebuyers spend as much time deciding what type of mortgage is right as they do what type of home is right. Each mortgage company has different products and loan types. Finding the right mortgage for you requires taking the time to talk with multiple lenders and knowing what questions to ask.
Ask your friends, family and business associates for referrals. Ideally find three to five mortgage companies to contact. If you cannot find that many referrals, contact local banks and ask your real estate agent for a referral. Understand you are not required to use anyones referral. Call each company, explain to them your situation and ask them to provide you a couple of different quotes.
Sort your quotes by loan type. You may receive quotes for fixed-rate, adjustable-rate and hybrid adjustable-rate loans. Decide what type of loan you prefer. You can trade a higher rate for payment stability and choose a fixed-rate mortgage. You can choose an adjustable rate mortgage, or ARM, and enjoy a low initial rate that can adjust both up and down in the future. Hybrid ARMs allow you to enjoy a fixed rate for three, five or seven years before it adjusts, while providing an initial rate between a true ARM and a true fixed-rate mortgage.
Make An Offer On A House
When you decide to make an offer on a home, you must submit an offer letter in writing. Your offer letter includes details about yourself , the price youre willing to pay for the home and more. It will also include a deadline for the seller to respond to your offer.
Most offers also include an earnest money deposit. An earnest money deposit is a small amount of money, typically 1% 2% of the purchase price. Your earnest money deposit goes toward your down payment and closing costs if you buy the home. If you agree to the home sale and later cancel, you typically lose your deposit.
Your agent will almost always write the offer letter on your behalf, but you can write it yourself if you choose. Your agent will then get in contact with the seller or the sellers agent to submit the offer.
From here, the seller can respond in one of three ways:
- Accept the offer: If the seller accepts the offer, you can move onto the next step.
- Reject the offer: If the seller rejects your offer, the ball is back in your court. You can choose to submit another offer or move onto another home.
- Give you a counteroffer: The seller can also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it, or make another counteroffer.
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Know Your Mortgage Options
A key aspect of finding the best mortgage lender is being able to speak their language, including knowing the different types of mortgages. Some upfront research can also help you separate mortgage facts from fiction.
Traditionally, when it comes to getting a mortgage, a lot of peoples first thoughts are to go to a bank or that they need a 20 percent down payment to afford a home, says Mat Ishbia, president and CEO of United Wholesale Mortgage. Thats an outdated way of thinking.
Many lenders offer conventional loans with as little as 3 percent down, and some government-insured loans require no down payment or just 3.5 percent down. Consider FHA loans and USDA loans, and if youre a veteran, look into VA loans.
Keep in mind that if you put down less than 20 percent, many lenders will charge you a higher interest rate and require mortgage insurance.
What To Review In Mortgage Loan Offers
When you get a mortgage pre-approval from a few lenders, you should consider several factors to determine the best offer:
- Form fee. You may have to pay this to cover the credit report fee and possibly more.
- Evaluation fee. The lender will choose an appraiser, and the buyer is required to pay for the appraisal report.
- Incorporation or subscription fees. This is to pay for the work the mortgage team does to prepare the loan, although some lenders do not charge a fee for it.
- Price lock fee. Not all lenders charge a fee to lock in your interest rate. Check to see how long the rate lock lasts, and whether you may need to pay for an extension if necessary.
- Ownership related costs. The lender will usually choose the title company they will work with in the transaction, but you may be able to recommend a company that costs less than choosing a lender.
- Mortgage points. These should be discussed with the lender, as they can help you get a lower interest rate and/or transfer some fees to the loan.
If the lender wont let you know the fees when you are preapproved, dont deal with them, advises Haynie.Interest rate. Low interest rates grab the attention, but you wont know the actual rate until pre-approval. Sometimes the lender will need to adjust the fee to get the lowest rate possible.
You need to shop, not just price, Owen says. Most companies can offer similar interest rates. The question is: How much does it cost to get that interest rate?
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