How to Shop for a Mortgage: 6 Steps
Buying a home may just be the largest financial investment you’ll ever make, and the mortgage you’ll likely need to help finance that investment is just as big of a decision. Even a seemingly small percentage difference in interest rates can cost you thousands of dollars over a period of 15 to 30 years. While shopping for a mortgage can seem overwhelming, it also presents the opportunity to find a better deal. Here are a few steps that you can take while mortgage shopping that may help you save on your new home.
1. Check Your Credit Report
Like many loans and other requests for credit, shopping for a mortgage begins with checking your credit report. This is because lenders typically determine your mortgage interest rate and terms based on the information contained on your report and the credit score calculated from it. Usually, the higher your credit, the lower your interest rate. It’s best to request your credit report several months before shopping for a mortgage. This will allow you to find any incorrect information that may be affecting your score and, if needed, create a plan to build your credit. You can request your credit report from any of the three main credit bureaus, including TransUnion, Experian, and Equifax.
2. Save For A Down Payment
Saving also begins months, if not years, before mortgage rate shopping. Buying a house is a massive financial undertaking. Even before you begin looking for a mortgage, you should know how much you are willing to spend. The more you are able to save, the more likely you will be prepared for closing costs, mortgage payments, and, most importantly, down payments. Generally, larger contributions to your mortgage down payment are better. Try aiming for 10 to 20 percent. If you can afford more, do it. Remember, the more money you put down now, the less interest you’ll have to pay back over time and the lower your mortgage payments will be. Additionally, lenders will typically offer lower rates to borrowers who make larger down payments.
3. Find A Lender
Mortgage shopping doesn’t end with the first quote you receive. Instead, you should plan on collecting two to three offers from different lenders to compare costs and find the best deal. You have the option of quickly comparing multiple mortgages and rates online with the help of a mortgage calculator. Although you can apply for a mortgage online, it’s best to meet a lender in person if you have any questions or concerns about keeping your personal information private. Ask your real estate agent or a close friend who has recently bought a home for help. They will most likely be able to refer you to a preferred mortgage lender. You may also want to see what mortgage options your bank offers, or seek out a mortgage broker for help.
4. Compare Rates (And Total Costs)
After you find your lenders, decide which type of loan you want and how long it will take to pay it back. Doing this will allow you to standardize your search for a mortgage. Once you have two to three quotes collected, compare them. While interest rates may be a large factor to consider when shopping for a mortgage, they’re not the only things to compare. Ask your lenders for a full list of costs and services. Add up all the fees, penalties, closing costs and other expenses that may be included in the mortgage process. Your total may show that even though a mortgage option may have the lowest interest rate, its additional expenses cost you more.
5. Remember To Negotiate
Now that you’ve found your lender and have all related mortgage costs on the table, it’s time to see if there is any room to negotiate an even better deal. See if there are any fees that your lender is willing to drop to keep you. Showing better terms that a competitor has offered may convince your lender to match them. Ask if there is any cash back after closing. Depending on the markets, your lender may offer incentives to close the deal. If you are shopping for a mortgage at your bank, make sure they know that you’re an existing customer. Reduced fees or better rates may be available for current account holders.
6. Recognize A Good Deal (And Take It)
One of the most common mistakes made while shopping for a mortgage is not knowing when to close the deal. Often, there are expiration dates on rates and terms offered by a lender. If you do not lock them in fast enough, you may find that the deal you’ve worked so hard to make is no longer available. While comparing offers and waiting for rates to drop could be beneficial, waiting too long could cost you. Once you have considered all of your options and are happy with an offer, take it.
Buying a home is a big deal and so is the mortgage that comes with it. Because of this, shopping for a mortgage rate and comparing costs is a must. A little work and research now has the potential to save you money in the long run. Remember, your new home is within reach. Finding the best mortgage to finance it just takes a bit of patience and persistence.
Disclaimer: The information posted to this site was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation.
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