For most home buyers, shopping for a mortgage is necessary when buying a home. However, most first-time home buyers don’t start shopping for a mortgage early enough. Along with not shopping soon enough, many new home buyers don’t shop around for the best rate.
A survey from 2013 showed that nearly half of home buyers only consider one lender or broker when applying for a mortgage. The same survey also showed that most home buyers don’t shop for their mortgage early enough. Here are a few tips to ensure you start looking for a mortgage early in the process and you find the best possible rate.
Shop for a Mortgage before Looking for a Home
Sometimes, buyers become disappointed when they fall in love with the perfect home only to find out they don’t qualify for the mortgage. For most home buyers, the mortgage needs to come first. You should get a pre-approval from your mortgage company before you start shopping.
When you are already pre-approved, the mortgage company has said you will be approved as long as everything checks out with your income documentation, the home appraisal and other forms of due diligence. This gives you buying power with sellers and puts you ahead of any offers made without a pre-approval letter from a mortgage company.
A pre-approval will also give you a better idea of how much you can afford to spend on a home. They will qualify you for an amount, which you can take to your real estate agent and they can ensure you don’t fall in love with a home you cannot afford.
Shop Multiple Lenders/Brokers
The mortgage industry provides options for multiple situations. Whether you have great credit and a strong income or you have okay credit and run your own business, there’s a lender out there for you. However, don’t just go with the first lender you find willing to approve your loan.
Instead, should spend time shopping around. Compare at least three different lenders or brokers to ensure you are getting the best deal possible. You can even take a written quote from one company to another in order to see if they will beat the rate, closing fees and other fees for you.
When you shop around for a better interest rate and a better overall deal, you may be surprised what you find. Some mortgage companies will go to great lengths to ensure you do business with them instead of their competition.
Don’t Just Base Your Decision on the Interest Rate
Yes, the interest rate is very important, but it’s not the only thing to consider. You also want to consider the closing costs, fees and points.
Closing costs may be paid by the seller, but if they won’t be, you may need to roll them into your mortgage. If this is the case, you need to make sure you are getting the best deal possible.
The fees you may encounter with a mortgage can be costly. From a broker fee to an underwriting fee, you need to make sure you are getting the best deal when it comes to the fees.
Another potential cost, which is used to buy down your interest rate, in most cases, are points. This is a fee you pay for a lower rate and sometimes it’s worth it. However, you want to do the math and compare multiple mortgage quotes to make sure you really are getting the best overall deal.
Avoid Private Mortgage Insurance
When you put 20% or more of the purchase price of the home down, you can avoid paying Private Mortgage Insurance or PMI. Not only will this help you save money, but it will also help with the approval when you put 20% down. Even though it may not be required to put 20% down, it’s a great way to ensure you get the most of your mortgage.
There are many things to consider when you decide to buy a home. Don’t put off shopping for your mortgage and make sure you compare multiple lenders. If you put it off, you may find out that you could have gotten a better deal or you may end up getting out bid simply because you don’t have a pre-approval for the necessary funds to purchase the home.
Originally posted 2015-09-10 13:01:20.