When you’re making a big purchase, such as buying a car or a new furnace, you know that it pays to shop around. Different stores will offer different prices and incentives, and you can save yourself a pile of money if research the deals that are available to you. But did you know the same is true for a mortgage? Just like any big purchase, it pays to shop around for your home loan. You’ll find that different lenders offer different rates at terms. If you’re in the market for a mortgage, then here’s how to get the best interest rate.
Know Your Financial Situation
You need to know what you’re working with to get the best interest rate on your home loan. That means checking your credit report. Lenders will be looking closely at your credit report to determine your eligibility for a loan as well as your interest rate. The better your credit, the better your rate. If you want to improve your credit score, then try paying off debt and making all your payments on time. Also avoid taking on any new lines of credit, such as a car loan, when you’re in the process of applying for a mortgage.
Check Out at Least Three Lenders
When you begin shopping around for your mortgage, you should check out at least three lenders. There are many types of lenders available including:
- Mortgage bankers such as large banks, credit unions, and online lenders.
- Retail lenders that offer other services such as checking accounts in addition to home loans.
- Direct lenders that are similar to retail lenders but focus solely on mortgages.
- Wholesale lenders that offer loans through third parties.
- Online-only lenders that offer their services only through the internet.
Work With a Mortgage Broker
If you’re just getting started and unsure where to begin, then you may benefit from working with a mortgage broker. These are licensed professionals who can counsel you during the process and help you shop for lenders to get the best deal. They typically work for an independent mortgage company are usually paid by the lender after your loan closes.
Have Lenders Big Against Each Other
Once you begin to look at the rates each lender is offering, it’s time to use that information to your advantage. If there is a lender you already have a relationship with – say, your bank – but they have a higher interest rate, then you can approach them and ask them to match another lender’s rate. Even if that lender can’t match the rate, they may offer other incentives. This could include negotiating a better rate with a larger down payment or even depositing cash in your checking account after the loan closes.
Don’t Forget to Look at the Other Fees
Finally, it’s important to remember that your interest rate isn’t the only thing you need to be looking at when shopping for a mortgage. Also, look at the other fees you will be paying. This can include closing costs such as title insurance fees, taxes, appraisal fees, and origination fees. These fees can total as much as four percent of the entire loan amount. Ask lenders for an itemized list of closing costs. You may be able to have some waived or lowered as part of your negotiations.
