How to Comparison Shop for Mortgages
In some ways, shopping for a mortgage works much like other big purchases. You pick out a few options and compare them directly, to decide which one offers the best deal and what other factors might influence your decision.
These tips can help you compare your home mortgage rate offer to rates and services offered by other lenders.
Go rate shopping.
To determine how the strategy offered by any mortgage lender is better than another, do some online comparison shopping. Here at Lower.com, we update our rates daily, as well as define the vast options of mortgage strategies, along with those of our competitors. So, you can compare multiple offers all in one place.
Compare other benefits.
Interest rate is just one factor. Take a look at benefits beyond rate. After all, buying or refinancing your home is a big deal, and it can't hurt to look around.
Large depositories (big banks that typically offer checking and savings accounts) tend to have large infrastructures and advantages like multiple bank branches nationwide. As a result, their offerings tend to be a very "one size fits all" approach. However, you may feel more comfortable working with a lender that can focus more on personalized service.
Best rule of thumb—select a lender you feel comfortable with. Did you get a good feeling from the person you spoke with? Do you think they'll be there when you need them, and will they be able to answer all of your questions? If something feels off at the beginning, you might want to look around at other options.
Consider your personal experience.
If you've had a particularly good or notably poor experience with a lender, keep these experiences in mind when comparing mortgage rates and programs.
You could also get a feel for how a lender seems to value customers by contacting them for more information. It's a good sign if the person you speak with responds promptly and spends time answering your questions carefully. On the other hand, if you never hear back, or if they respond with an impersonal message, it may be an indicator of what your relationship with the lender will be like later.
Timing Matters.
Large depositories have a lot of layers. That's good when it comes to security, but bad when you're on a strict timeline (such as, say, under contact to close on a home purchase in under a month). Make sure that you understand the timing involved when working with a lender. At Lower, we specialize in efficiency and getting you to the closing table ahead of schedule. At large banks, mortgage lending is such a small percentage of their business, they don't put the same prioritization or sense of urgency as an independent mortgage bank like us will. And if critical timelines aren't being met, sometimes that leads to deals falling apart unnecessarily.
Read customer reviews.
Spend some time searching out online reviews about different lenders. You can get some first-hand insight into how customers perceive their experience with various lenders this way.
Bear in mind that customers are more likely to complain about a company than share a positive experience. Still, reading through customer reviews can give you a general sense of a lender's reputation. If you the complaints far outweigh the positive feedback, it could be a pattern.
(Here at Lower, we have over 10,000 five-star reviews on Google, Facebook, LendingTree and Zillow.)
Seek out special programs.
If your US Bank offer doesn't include benefits from a special program, look into whether there are programs that could benefit you. (Or contact our team here at Lower.) Some examples of special programs for homebuyers include:
- Fannie Mae Standard 97% LTV loan
- Freddie Mac Home One Loan
- Freddie Mac Home Possible Loan
- Fannie Mae HomeReady Loan
- Federal Housing Administration (FHA) Loan Program
- HUD's Good Neighbor Next Door Initiative
- USDA Loan
- VA Loan
- HomePath Ready Buyer Program
- Local First-Time Homebuyer Programs and Grants
These programs help homebuyers solve common barriers to home buying with features like down payment assistance. You'll also find that some special loans may offer better rates than a conventional loan if you're dealing with credit problems.
While several of these programs mostly benefit first-time homebuyers, they may still help you if it's been several years since you last owned a home. For example, many lenders promote FHA loans as exclusively for first-time buyers, but these loans are available for all borrowers.
Check local government sites for special programs that may apply to your situation. Often, you can take advantage of these programs in conjunction with other specialized loan programs.
You could be doing business with the financial institution that issues your mortgage for decades.
More Tips and Strategies for Getting a Lower Rate
It's worth your time to consider all of the options available to you as a homebuyer. Your work will pay off significantly if you can get a lower rate.
Try these strategies for getting a better mortgage offer, no matter which lender you’re working with.
Ask for a lower rate.
One of the easiest ways to lock in a lower mortgage rate is to just ask. Lenders know they have a great deal of competition when trying to attract homebuyers. If there is any room for negotiation, the lender may be willing to bring your rate down a bit to keep you as a customer.
You're more likely to get traction here if you show the lender an offer from a competitor with a lower rate, but sometimes just asking is enough to improve your offer.
Make a larger down payment.
If you're able to swing a larger down payment, you'll not only bring down the amount of money you need to borrow, you could also improve your interest rate. Lenders tend to offer better interest rates to homebuyers who make larger down payments.
Reduce your debt-to-income ratio.
Lenders look at your debt-to-income ratio closely when determining your interest rate. This figure represents how much you owe to creditors compared with how much income you earn.
Depending on your rate and your mortgage terms, you might come out ahead if you pay down some of your outstanding debt rather than keeping that money for a larger down payment. Be sure to ask lenders how much your debt-to-income ratio will change when you pay off some of your debt. Paying down debt can increase your credit score as well, which can drive down your mortgage rate.
One of the easiest ways to lock in a lower mortgage rate is to just ask.
Repair your credit.
About 20% of American consumers have an error on at least one of their three credit reports, according to the Federal Trade Commission. It's worth your time to check all three reports thoroughly for errors and get any mistakes corrected. The process is straightforward, and your scores can rise significantly.
It's also good to get in touch with creditors and ask them if they can remove older late payments and credit lines. Some creditors are more willing than others, but it's certainly worth asking. You may have better luck if you're still a customer with the creditor.
Establish a steady income and payment pattern.
Though this isn't a quick fix, you may walk away with a much better mortgage rate if your application shows a more stable financial history. If your job history looks spotty, your interest rate can suffer.
Another way to show lenders you are responsible with money is to maintain a record of rent and utility payments. These payments aren't reflected on your credit report but could be something the lender can consider when determining your rate.
It could take a few months or longer to establish a better steady income pattern and a consistent payment record. Still, if your offer includes an exceptionally high-interest rate, you may fare better financially by holding off.
It's worth your time to check your credit reports thoroughly for errors and get any mistakes corrected.
Choose a shorter-term mortgage.
Take a good look at your monthly budget to determine if you could afford a higher monthly payment. You could benefit from substantial cost savings if you opt for a 15-year loan over a 30-year. Interest rates tend to be lower on shorter-term loans, and you'll save many thousands of dollars because you will pay off the loan twice as fast.
You'll also gain equity in your home much sooner, opening up opportunities for cash-out refinancing and home equity lines of credit (HELOCs).
Pay points.
Consider paying "points" to bring down your mortgage rate. One point is equal to one percent of the loan's total value. When you purchase a point, you can reduce your interest rate by 0.125 percent.
It works like this: if you want to pay down one point on a $100,000 mortgage, you'll need to pay $1,000 out of pocket. This will save you $10 per month, so it will take 100 monthly payments (about eight years) to recoup that investment and start seeing the benefits of paying the point upfront.
Paying points is usually more advantageous for homebuyers who plan to stay in their home for longer than ten years or so. Study your whole financial picture carefully to determine the best choice for your situation.
Plan to refinance later.
If your mortgage offer includes a high interest rate because your financial health isn't in great condition, you could hold off while improving your profile. However, if you need to purchase a home right away and expect to be in better financial shape within a few years, you could accept the rate now and refinance later.
This tactic is a bit risky—there's no guarantee you'll qualify for refinancing later. Make sure you're comfortable with the loan payment, even if your plan falls through.
Interest rates tend to be lower on shorter-term loans, and you'll save many thousands of dollars because you will pay off the loan twice as fast.
Making a Plan for Your Mortgage
When it comes to buying a home, don't settle for the first offer you receive, whether from a large depository or another lender. With these tips and tricks, you may be able to save thousands of dollars.
Lower offers the best of both worlds: industry-low mortgage rates and exceptional customer service. Find out why happy homebuyers keep choosing us.
