How to Shop for a Mortgage
Shopping for a mortgage is highly recommended, but people usually don’t know how to start and how to compare one lender from another. It makes a difference in more ways than you’d expect. So let’s get started finding you a loan!
The Mortgage you’re Shopping for is a Service, Not Just a Product
First, yes mortgages are products. There are FHA, Conventional, VA, and a whole bunch of specific variations within those categories. But it’s also a service. You’re depending on your lender to take you by the hand and walk you through a complex process. If you’re not a math wiz, you’ll probably need some help understanding what it all means and what your best options are. So focus on the service and the person giving you that service. The right lender, will lead you to the right loan product.
Timing: Shop for a Mortgage Before You Shop for a House
Why start here? When it’s boring and takes some time and effort to get all the paperwork ready. I’d rather be looking at houses. Well, think of it as eating your vegetables before you have desert. You need to know what you can actually afford before you go out looking. It sucks to fall in love with a house and find out later that you can’t have it. Also, when you do find the right house, you want to be able to pull the trigger and buy it right away. If it’s a good house, for a good price, someone else is going to take it long before you’ve finished finding your pay stubs and tax returns.
Start Shopping by Getting a Feel for Market Mortgage Rates.
When shopping for a mortgage, you’ll see that interest rates do vary from lender to lender, but surprisingly, the differences aren’t usually very drastic. Still a few tenths of a percent can add up over a thirty year loan. Start on sites like bankrate.com or a simple google search can also help to know what the ball park should be. Also feel free to use our home affordability calculator.
Compare Apples to Apples: APR
Instead of just comparing that your friend, Susie’s aunt, got an interest rate of 4% while you were offered a rate of 4.125%. Try to compare APRs. Each lender can provide you their APR, and it’ll take into account all the fees AND the interest that the loan will cost you. That way you can more easily compare what one loan costs to the other. Some lenders might charge a lower interest rate, but then charge higher up front fees.
You’re a Unique and Special Snowflake
Again, if you’re neighbor’s uncle got a better interest rate than you, it doesn’t mean that your rate is bad. Each person has a unique financial situation with a different combination of assets, income streams, debts, and credit history. Instead of comparing your rate at one bank to another person’s, you should compare YOUR application at many different banks.
Do Not Just Go with the Cheapest Mortgage
Getting a good deal matters, but it’s not just about that. As with most complex purchases, service and quality matter as much, if not more than price! A bad lender can drop the ball, and possibly ruin your deal. Of all the professionals involved in your purchase, the loan officer has the most bureaucracy to deal with. They’re the most likely to delay your deal. So find a lender where one person, a loan officer, is your main point of contact.
You don’t want to be calling a 1-800 number and navigating through an automated call menu to get answers.
When Shopping, the Loan Officer’s Personality Matters
Once you have a Loan Officer, You want your loan officer’s cell phone number, so you can reach them when you have a question. Make sure their personality clicks with yours and they have the patience to explain a complex topic over and over again to you. You want to feel no hesitation in calling this person and asking them to explain something to you. If they make you feel dumb for asking, RUN AWAY! You want to feel comfortable jumping into this. Make sure they can reach your realtor, and that I (your realtor) can just call them up and get right to business. 1800 numbers have been a terrible experience for me!
The Lender’s Reputation Affects How Good You Look to Sellers
The whole point of shopping for a mortgage is to buy a house. You need the seller to believe that you are able to buy the house. When I represent sellers, and we receive offers, the first thing we do is look at the buyer’s pre-approval letter. A part of that is asking ourselves, who is this lender? Certain institutions and lenders have a reputation for being bureaucratic and slow. While others are nimble, flexible, and personal.
On the other hand, when representing buyers, I’ve had sellers tell me that they liked my offer, but they didn’t like the lender my buyer had selected. That they’d consider our offer if we considered another lender.
Take-away
In conclusion, it’s natural to shop for such a big purchase. It’s encouraged! But the cheapest option isn’t always the best deal. Ask your realtor for a referral, meet your lender in person or at least over the phone, and then trust your gut!
