Tips For Finding the Best Mortgage Rates in Your Area
Shopping around for the lowest mortgage rates can save you thousands of dollars in interest over the course of your loan. One study revealed that borrowers who received rate quotes from multiple lenders on average saved an additional $1,500 in interest payments.
Mortgage rates are determined by market forces and can fluctuate daily or even hourly. They also differ according to loan type and term.
1. Shop Around
Finding the lowest mortgage rates in your area requires comparison shopping. Doing so could save you tens of thousands of dollars over the course of your loan.
Mortgage rates are determined by a variety of factors, such as your credit score, loan term (fixed or adjustable), down payment size and home location. Even among borrowers with similar credit scores and financial circumstances, rates can differ significantly.
There are many ways to lower your mortgage rate, such as decreasing your debt-to-income ratio, paying down the balance and improving your credit score. You could also consider taking out a reverse mortgage or home equity line of credit.
Before making a final decision, it’s wise to obtain quotes from at least three lenders. You can do this by using a mortgage broker, your local bank or credit union.
Comparing quotes online gives you a better idea of what different lenders are offering and how they stack up against one another. Bankrate’s mortgage rates comparison tool makes this possible.
According to Freddie Mac, the average borrower who shops around for a mortgage rate can save $1,500 over the life of their loan. If you’re able to negotiate with your lender, that number could even be higher.
When looking to purchase your first home or refinance an existing mortgage, shopping around can be a great way to save money and avoid expensive fees. Additionally, keep in mind that mortgage rates are constantly fluctuating.
To make shopping around easier, lenders are required to provide a mortgage loan estimate. These documents will outline the terms and fees of each loan so you can compare them side-by-side before applying.
When looking for a mortgage, it’s wise to get pre-approved. This way, you will know exactly how much house you can afford and what your monthly payments will be.
When searching for a mortgage rate, you’ll want to ensure you have good credit and enough down payment. First-time home buyers can take advantage of loans from government agencies like the Federal Housing Administration or Department of Veterans Affairs; furthermore, check with your state or local housing agency about specialized programs which might enable you to buy a home at an attractive interest rate.
2. Get Pre-Approved
Pre-approval for a mortgage is an integral step in your home-buying journey. It helps you determine your budget and demonstrates to real estate agents that you are serious about finding a house. Furthermore, you will know if you qualify for a certain loan amount and the type of loan best suited to your requirements.
Making the effort to get pre-approved is worth the time; it gives you the best chance at purchasing your new home quickly and without much stress or strain. Plus, it allows you to compare interest rates, fees, and loan terms from multiple lenders and find which option is most advantageous for your individual situation.
Pre-approvals can take anywhere from three days to ten days, depending on the lender and information needed. It may take longer if your income hasn’t been verified yet, you are self-employed, have outstanding debt or low credit scores.
Within three business days of applying, a lender will issue you with a document called a Loan Estimate. This will contain information regarding your maximum loan amount, terms and type of mortgage you have been pre-approved for, as well as an interest rate and estimated monthly payments.
Once approved by your lender, they will send you a preapproval letter – this serves as official confirmation of approval and details on what loan amount and type you qualify for. Be aware that this may have an effect on closing costs.
There are several ways to get pre-approved, including speaking with an in-person mortgage officer and online. Lenders offering self-service pre-approvals enable borrowers to fill out a loan application online and submit financial documents like W-2 statements, tax returns and pay stubs; typically taking less than one day.
Banks and mortgage brokers may send you a letter indicating your pre-approval for an amount of money. These letters usually last anywhere from 60 to 90 days.
Once you are ready to purchase a home, your next steps will be submitting a purchase contract and scheduling an appraisal. A loan officer will verify your employment status and assets; they’ll also pull your credit report for security. You can get a free copy of both your credit report and score before applying for a mortgage; working on improving your score before starting the mortgage process can result in lower rates.
3. Compare Mortgages
To find the best mortgage rates in your area, you need to shop around. This can be a time-consuming task and dealing with all the numbers involved can seem intimidating at first, but the effort pays off when finding a loan that meets all of your financial requirements.
Bankrate is an excellent place to begin when searching for mortgage rate tables. By entering general information about your finances and location, this tool allows you to receive tailored offers from lenders. Utilizing this tool can save time while helping you compare lenders that best suit your mortgage needs.
Prior to choosing a lender, it’s wise to compare at least three options. If possible, include your bank as well; they sometimes provide lower rates for existing customers.
When shopping for a mortgage, it’s essential to factor in other fees and costs that could impact the price of your loan. These include closing costs, origination fees, discount points and annual percentage rates (APR).
Another important consideration when purchasing a new home is how long you plan to live there. If only temporarily, pay closer attention to the Annual Percentage Rate (APR) of your mortgage and select a lender with lower interests rates.
In addition to the APR, some lenders offer discounted rates when you pay extra upfront in the form of mortgage points. Although these fees can help secure a low mortgage rate, this arrangement typically isn’t suitable for borrowers who don’t plan on staying in their house long.
To obtain the best mortgage rates, be prepared to comparison shop – ideally with a lender you trust and have an established relationship with. This can be done either directly through your lender or through a mortgage broker.
Lenders base their rates on several factors, including your credit score, employment history and debt-to-income ratio. You can start improving your credit score and paying down debt six months to a year before purchasing a home; doing so may enable you to qualify for the lowest mortgage rate possible.
4. Get a Loan Estimate
A loan estimate is an integral element of the mortgage process. It’s a government-mandated document that lenders must provide potential borrowers within three days of receiving their application and before they make any decisions regarding loan approval. In it, all important figures and costs related to getting a mortgage are clearly laid out.
When looking for a home loan, it’s not unusual to receive multiple loan estimates from different lenders. This is beneficial as it allows you to compare detailed offers from various lenders and select the one that best fits your individual situation.
To obtain a loan estimate, you’ll need to provide your lender with certain information about yourself such as your legal name, proof of income and Social Security number. Additionally, make sure they know what amount you wish to borrow and where it will be paid.
Your loan estimate typically encompasses three pages and provides key information about your loan, such as the interest rate, monthly payment amount and closing costs. There are also sections that outline the loan’s features and options.
The initial page of your loan estimate shows your estimated monthly payment, which is calculated based on your total debt (including your new loan), plus any down payment and other fees that apply to loans with smaller down payments, such as mortgage insurance and escrow fees for homeowners insurance and property taxes.
At the top left corner of page one, you’ll see an overview of origination charges – fees lenders charge for originating your loan. These can vary between lenders, so always compare what’s being offered on a loan estimate with what appears on your final closing disclosure.
Additionally, you’ll find details on your interest rate (which can be either variable or fixed), as well as discount points which could reduce it by 1% of total loan amount. Points are typically negotiated independently by lenders to reduce the overall interest rate.
On the second page of your loan estimate, you’ll see how much cash is necessary to close on your new mortgage. This section also outlines all closing costs such as a title search and lender title policy. In some cases, you may receive a “lender credit” which covers these items up to 6% of total loan amount.