6 steps to get the best mortgage rate
Your plan for the best rates
No. 1: Establish a baseline.
Get a referral from someone you trust and contact the recommended
lender to obtain your credit scores and discuss your loan options. Your
lender can help you compare Federal Housing Administration and
conventional financing, as well as various loan terms, so you can make
an informed decision on which loan program and terms you want before you
contact other lenders.
No. 2: Contact a mix of financial institutions.
Interest rates fluctuate constantly for a variety of reasons, including
the occasional promotion of a particular loan product by a financial
institution. For example, some lenders who are eager to generate more
purchase loans might offer the best mortgage rates for homebuyers but
not for refinancing homeowners, says Martucci. Sometimes a credit union
or bank will introduce a new loan product and offer better mortgage
rates in order to entice borrowers, says March.
"It's best to
diversify and try a mix of places, such as a direct lender, a regional
bank, a credit union, a community bank and a national bank," says March.
No. 3: Decide when you want to close.
The length of your lock-in period will impact your mortgage rate, so
discuss your target close date with each lender and ask about
the charges for different loan-lock periods.
"Make sure you tell
the lender when you expect the closing to be, because you want to lock
in the interest rate for the right length of time," says Richards. "Many
lenders charge one-eighth percent more if you must lock-in the loan for
60 days. If you need a 90-day loan lock, your interest rate could be as
much as one-third percent higher."
No. 4: Ask about fees.
The variation in fees associated with a loan are one reason why you
shouldn't comparison shop solely based on the best advertised interest
rate. Sometimes a mortgage at a lower advertised rate can end up costing
you more because of all the fees associated with it.
"Some
lenders blend all their fees into a loan preparation fee, while others
separate them out, so be sure to ask for the total amount it will cost
to close the loan," says Martucci.
Generally, a mortgage with higher fees should have a lower interest rate, says March.
If you're refinancing, use
HSH.com's Tri-Refi Refinance Calculator
to compare your options for paying closing costs. Experiment with the
options to find out if you should you wrap the closings cost into the
loan amount, pay them in cash or choose a "no-cost" mortgage.
No. 5: Consider whether you should pay points. One
of the largest expenses can be the points attached to a particular loan.
Each point is equal to one percent of your loan amount.
"You need
to make sure you discuss with each lender how the loan will be
structured in terms of whether you are paying points or not," says
March.
If you intend to stay in the home for the long term, such
as 10 years or more, you may want to pay points to keep your interest
rate as low as possible for the life of the loan. If you plan to sell in
a few years, paying a lot of cash upfront to pay points may not be
worth it, says Richards. A lender can show you the difference in
interest and monthly payments to help you decide whether worth it to pay
points.
No. 6: Call lenders on the same day.
Because mortgage rates fluctuate constantly, you should call lenders as
close to the same time as possible on the same day to compare rates,
says Martucci.
"If possible, call within the same timeframe,
because a bond rally could mean that mortgage rates have dropped
dramatically from the morning to the afternoon," he says.
After
you have organized your financial information, follow the six steps
above to ensure that you get the best mortgage rate available.
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