A Guide to Mortgage Shopping
As we close in on this holiday season, everyone is shopping for something. Most shopping is fun- new shoes, new cars, and gifts for others. Doing some comparison shopping is part of the deal, and it can save you a huge chunk of change.
This same principal of shopping doesn’t always translate to the real estate market. Most people will see a lot of houses before they find The One. But those same home shoppers will take the first mortgage that comes along. According to a report from the Consumer Financial Protection Bureau, almost half of consumers don’t shop around at all for a mortgage.
But that’s a big mistake. Don’t just go with the first option you think of, even if it’s the one with the coolest ads or from your own bank right down the block. It pays to look around. Here are some tips on the why and how to shop for a mortgage right, as suggested by Realtor.com.
What to look for in a lender
Here are several solid reasons why it pays to compare and review your options when choosing a mortgage:
- Lenders offer different rates: Even if the mortgage product they are offering is essentially the same—say, a 30-year fixed-rate conventional loan—rates can vary by more than a half-percent, and that half-percent can add up fast. Let’s look at a $250,000 mortgageas an example. If your interest rate is 3.0%, your monthly payment will be $1,054, and you’ll pay $129,444 in interest over the life of the loan. If your interest rate was a half-percent higher, at 3.5%, you’d pay $1,123 every month for a total of $154,140 in interest. That’s almost $25,000 more in interest payments alone over the life of the loan.
- Lenders have different programs: Because there are so many different types of mortgages, you’d do well to talk to someone who can really sit down and articulate the pros and cons. Some borrowers are better suited to a fixed-rate conventional product, while another who isn’t planning to stay in the home longer than 10 years or so might end up paying a lot less with a 15-year loan or an adjustable-rate mortgage. Each homeowner’s situation is different, so it’s vital to talk through the various options with a knowledgeable lender.
- Lenders have different specials: Mortgage lending is a business obviously, so lenders need to make money. In a competitive environment, you might find that some are offering to pay closing costs or provide other perks while others might tout quicker processing. Shopping around allows you to find the best deal for you.
- Lenders charge different fees: Many lenders charge a lengthy list of fees: loan origination, title insurance, loan application, rate lock (which protects you from rate fluctuations during the process), and more. You’ll want to find out what fees each one charges and see if any of the lenders you are considering are willing to negotiate by curtailing or all-out dropping a few of those fees.
- Lenders have different standards: Have a blemish on your credit history that could keep you from getting a good loan? Different lenders have different standards, so just because one turns you down or doesn’t offer you a great interest rate doesn’t mean that others will, too.
Where to look for a home loan
There are three main places you can get a mortgage:
- Banks: Your bank may be the first entity you think of, because one-stop shopping for your financial matters can greatly simplify your life. A bank can be a great choice if you already have a solid working relationship. If you have been a trustworthy customer over the years, your bank can often offer excellent rates. However, sometimes you have to have a little more financial savvy when working with a bank to make sure that its proprietary products are the best ones for you and your situation.
- Mortgage brokers: These professionals are also a great option mainly because they are specialists. They know more about the vast variety of loan programs that are available and can be better equipped to help you think through creative options. Since they work with a wide variety of lenders, they can do a lot of the homework to find you the best rate and specials from a variety of offerings. But, you’ll want to make sure that they are reputable and have your best interests—not the lender’s—at heart. Check their credentials online and talk to several before settling on a provider.
- Online: These days, everyone shops for everything online, so why not mortgages?