Shopping for the Best Rates on Home Loans

This guide covers shopping for the best rates on home loans. Many homebuyers and refinance mortgage loan borrowers needing a mortgage may go shopping for the best rates, especially refinance mortgage borrowers. Not all mortgage lenders have the same rates. I often get many phone calls from consumers shopping for mortgages with lower credit scores. John Strange, a senior mortgage loan officer at Mortgage Lenders for Bad Credit, says the following about shopping for the best rates and terms:

Many mortgage loan applicants are told by mortgage brokers not to go shopping for the best rates. This is because it will lower their credit scores every\ time a lender pulls their credit. Many mortgage shoppers get frightened over these comments from mortgage brokers and stop shopping for the best rates.

They often go with the mortgage broker that told them that shopping for the best rates will lower credit scores. In the following paragraphs, we will cover shopping for the best rates on home loans. Searching for the most competitive rates on home loans is beneficial; it can save you thousands of dollars over the years. The essential factors are knowing how to compare and receive the offers at the right time. Follow the steps provided:

Shopping for the Best Rates-Begin by Learning the Basics

• Interest Rate and APR (Annual Percentage Rate): The interest rate or borrowing rate references the cost of obtaining credit. At the same time, the APR is the value of the loan presented as a percentage of total fees. For easier comparisons, rely on the Annual Percentage Rate (APR).
• Loan Types: These include mortgaged-fixed types (either for 15 or 30 years) and ARMs (adjustable-rate mortgages). If you prefer stability, choose the former. The latter tends to be cheaper at the beginning.
• Points: Discount points reduce interest rates and can be paid upfront. Determine how long you plan to stay with the loan to calculate whether your break-even point fits your timeline.

Shopping for the Best Rates and Terms

• Obtain several quotes: Shopping for the best rates from 3-5 lenders simultaneously, such as banks, credit unions, mortgage brokers, or online lenders, is beneficial. Each lender has different strengths. For example, credit unions tend to have lower fees, whereas online lenders provide better rates.
• Same-Day Inquiries: Credit Bulgars treat mortgage rate shopping as a single inquiry if done within a 14- to 45-day time frame (depending on the scoring model). Credit impact is reduced if all lenders are checked within a single to two-day period.
• Lock in Context: Phrase loans the same way. Describe the amount of the loan, the term (e.g., 30-year fixed), and the down payment (e.g., 20%). If not done this way, quotes will not be comparable.
• Ask for a Loan Estimate: This form (which lenders are mandated by law to provide within 3 days of applying) outlines the various components, such as rates, fees, and closing costs. Use it when making comparisons.

Where to Look Shopping for the best rates

• Big banks: They are easier to recognize but not the most affordable. They are better for clients who prioritize in-person customer service.
• Credit Unions: Rates/fees are often lower, especially for members.
• Online Lenders: Companies such as Rocket Mortgage and Better.com offer competitive rates and fast application processing but little customer support.
• Mortgage Brokers: They shop multiple lenders on your behalf. Still, they may charge a fee or recommend less optimal options (check their incentives).

Timing Matters Shopping for Best Rates

• Market Rates Fluctuate: Track the 10-year Treasury note and Fed movements. Use sites like Bankrate or Freddie Mac to check for trends.
• Wait Until You’re Ready to Lock: Most lenders provide a 30-60-day locking period around the interest rates. If you are months away from closing, don’t lock too soon. Locks have expiration dates, and extensions come with extra fees.

Apply for a Better Rate

• Payment of a Credit Score: If it is above 760, the best rates will be offered. If the range falls within 620-680, expect to pay up to 1% more. Make sure to pay down your debt or vindicate errors before shopping.
• Down Payment: If it is around 20%, there will be no PMI, which adds 0.5-1% to the overall annual cost. Paying more than that will serve as an advantage in receiving a better interest rate.
• Debt-to-Income (DTI): It should remain below 36%. Borrowers reward lower risk and might make better offers if the gap between monthly payments and income is lower.

Beware of the Contracts

• Rate Lock Terms: Know the bond’s expiry dates and the cost incurred if delays occur.
• Fees: Ask how many of these are negotiable. Aside from origination, appraisal, and title insurance, some lenders remove irrelevant fees in order to earn your business.
• Prepayment Penalties: Clarify the repayment conditions if there is any early payout and that they are rarely used.

Get Ahead of Your Pro Moves

• Negotiate:  Let the first lender know if another offer caught your eye. If they fear losing you as a customer, they might lower their fees or cut rates to match the offer.
• Look for state subsidiaries:  Loan rates tend to be more affordable for low-income earners and first-time buyers (for those eligible for FHA or VA).
• Float Down Option: Market volatility can suddenly lower interest rates, so be sure to inquire if the lender provides the option to float down a locked-in interest rate for free.

Example Payoff

The example given is a loan of $300,000 over 30 years with an interest rate of 6.5%. The total cost of such a loan would be $682,000. However, if the interest rate were to drop to 6%, the cost would be $647,000. This means there is a savings of $35,000. In this case, half a percent makes a whole lot of difference. Remember to explore your options, look up APRs, and take your time making a decision.

Shopping For The Best Rates And Terms

Borrowers should be able to shop for the best rates and terms. However, consumers should not have every lender pull their credit. Should first interview the loan officer and see whether or not they can do a mortgage loan. Marga Jurilla, the executive assistant for Mortgage Lenders for Bad Credit says the following about shopping for the best rates and terms for a home mortgage as follows:

Borrowers with extenuating circumstances or credit issues, find out whether the lender has any mortgage lender overlays with the type of issues at hand. Many lenders have mortgage lender overlays on credit scores, credit tradelines, verification of rent, collection accounts, and debt-to-income ratios.

Borrowers will run into loan officers who will tell them shopping for mortgage rates will lower credit scores. Others tell borrowers that shopping for a mortgage is a waste of time and they will just be lucky just to get a home loan. Buyers and refinance borrowers with lower credit scores should still shop for mortgages and rates. Even if credit scores are low and the chances are that mortgage rates will be high due to low credit scores, borrowers need to feel comfortable not just with the lender but also with the loan officer as well.

Shopping For the best rates Is Recommended

Borrowers should shop for mortgages. Not just to get the best mortgage rates but also to get a loan originator who they feel comfortable working with. The mortgage application and approval process can be an extremely stressful process. Getting along with the loan originator is one of the most important factors. Every loan officer has different ways of doing business. One of the biggest complaints against loan originators is that they do not pick up their phones or return phone calls or emails in a timely manner.

Call Different Lenders. Shopping for the best rates and terms

Some loan officers return phone calls and/or emails within 30 minutes of receiving messages from their borrowers and are available late evenings, holidays, and weekends no matter how busy they are. Feel free to talk to as many loan officers and pick their brains. What common things do borrowers and loan officers have together?  Test out the loan officer’s knowledge. Do not have the loan officer pull credit until borrowers are sure they feel comfortable with the loan officer and the company. Once borrowers feel comfortable, the loan officer may be the potential loan officer the borrower may hire, then give the green light to run credit. The loan officer needs to run credit in order to qualify and pre-approve borrowers.

Do All Lenders Have Similar Mortgage Rates?

There is no such thing as a free lunch in the mortgage industry. You will see that rates vary from lender to lender when shopping for the best rates and terms on a home loan. In general, all lenders base their mortgage rate pricing on borrowers credit scores on government loans. Conforming loan pricing on rates depends on credit scores and loan-to-value. There can be a difference of more than 1.0 percentage point from one lender to another lender. Some lenders cannot give lender credit towards borrowers closing costs due to them having high rates. Other lenders can offer lender credit in lieu of higher rates to borrowers to cover part or all of their closing costs.

Loan Level Pricing Adjustments

Loan Level Pricing Adjustments (LLPA) are pricing adjustments lenders use to penalize borrowers with less than par pricing. Here are examples of LLPA hits on borrowers:

• Lower credit scores
• Manual underwriting
• Higher debt-to-income ratios
• Higher loan-to-value on conforming loans

How Will Shopping For the Best Rates Lower Credit Scores?

Every time there is a hard credit pull, there will be an inquiry reported on the consumer credit report. Yes, a hard credit inquiry will drop consumer credit scores by two or more points. When consumers first shop for a mortgage loan, the first lender that pulls credit scores will drop credit scores.   However, as more and more lenders pull credit within a 60-day period, credit scores should not be impacted. Maybe the first five mortgage credit pulls may drop consumer credit scores. But after then, consumer credit scores should not drop as long as it has been pulled in a 60-day window. Credit inquiries look very bad on a consumer’s credit report; however, if a mortgage lender sees that you had 12 credit inquiries in a period of 60 days from mortgage companies, they will understand that consumers were shopping for a mortgage.