How to shop for and compare mortgage offers
Before you choose a mortgage offer, it’s important to shop around and compare multiple offers to get the best deal. According to a 2018 Consumer Financial Protection Bureau study, the average borrower could have saved $300 a year, or $9,000 over a 30-year mortgage, had they gotten the best mortgage interest rate available to them.
How to shop for a mortgage
Before you begin comparing mortgage offers and rates, consider the kind of mortgage you want and what you can qualify for. Common loan types include:
Also consider the loan term, or the period you have to pay off the debt. Mortgages commonly come in 15-year or 30-year terms, but other terms are available.
Once you know the kind of mortgage and term you want, gather documents that show your income, investments, debt and more. In order for lenders to give you the most accurate quote, they usually need your:
- Tax returns
- W-2 forms and other documents reporting income
- Bank statements
- Statements for any investments, including brokerage and retirement accounts
- Records of all your debt, including student loans, car loans and personal loans
- Utility payment records
- Renting history
- Gift letters indicating that money gifted to you to buy a home is not a loan
- Divorce, child support and alimony documentation (if applicable)
- Records of bankruptcy and foreclosure (if applicable)
Once you have these handy, you can compare mortgage offers online. Talk to your bank or any other financial institution you have a relationship with as well, because they may offer better deals to existing customers. It’s a good idea to ask family and friends for referrals, too.
In addition, consider contacting a mortgage broker, who may be able to find you an offer you can’t find on your own. Mortgage brokers often work with lenders known as wholesalers, which don’t provide loans directly to consumers.
“If you’re feeling particularly overwhelmed by the process or you’re looking for a higher-touch experience, a mortgage broker may be able to help,” says Austin Kilgore, director of digital lending at Javelin Strategy & Research. “A mortgage broker shops your application around to find you the best rate.”
How to compare mortgage rates
When shopping around for a mortgage, it’s important to compare mortgage rates. Bankrate can help you shop for mortgage quotes through our mortgage rate tables, which allow you to plug in general information about your finances and location to receive tailored offers.
Keep in mind that the interest rate only tells you so much about the cost of buying a home. Getting a mortgage generally comes with closing costs and can include other charges like:
- Application fee
- Credit report fee
- Appraisal fee
- Underwriting fee
- Property taxes and other government fees
Lenders disclose these costs on the loan estimate.
What to know about the loan estimate
The loan estimate is an official three-page document that lists your loan amount, quoted interest rate, fees and all other costs associated with the loan. Comparing loan estimates can help determine which offer is more cost-effective.
“The loan estimate is a great tool for consumers because it gives them a real apples-to-apples comparison of all the intricate details of a loan,” Kilgore says. “Every lender uses the exact same form, which makes it easier to do a side-by-side comparison.”
Every lender is legally required to provide you with a loan estimate within three days of getting your application and pulling your credit report. The costs listed on the loan estimate generally don’t change any time in the mortgage process.
“Fees can decrease on a loan estimate but not increase,” says Ralph DiBugnara, vice president of Cardinal Financial.
On the loan estimate, keep an eye out for fees that may sound unfamiliar, including:
- Balloon payments: Mortgages with balloon payments allow you to pay a lower amount over the life of the loan — usually only interest — but then you must refinance or pay off the full balance at the end of the term.
- Prepayment penalties: Fees you must pay if you pay off your loan early.
- Private mortgage insurance (PMI): An additional cost that may be charged if you make a small down payment — usually less than 20 percent.
- Estimated cash to close: Other payments you must make before your loan is finalized in addition to closing costs.
Some lenders promise low interest rates but also charge excessive fees and closing costs, so make sure you pay attention to all the loan terms, not just the rate.
Some lenders may quote you a low rate made possible by purchasing mortgage points. Also known as discount points, these are upfront fees you pay to lower your interest rate. Depending on the cost of those points, this may not make sense for you. A different lender may be able to offer you the same rate or better without the need for points.
How many mortgage quotes should you get?
There is no definitive answer, but the CFPB recommends consulting with multiple lenders to maximize your potential for savings.
Don’t stop when you find an offer you like, either. Use that offer as leverage to get a better deal from another lender. Even if the other lender offers you a loan with the same fees but a slightly better rate, you can save money.
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What’s a good mortgage rate?
The mortgage market is constantly fluctuating, but since the start of the coronavirus pandemic, mortgage rates have been at or near all-time lows. For parts of 2020 and early 2021, 30-year fixed rates were averaging below 3 percent. Since bottoming out in January, rates have been trending upward, but are still generally between 3 and 3.5 percent for most borrowers with good credit. There’s no definitive “good” rate, which is why shopping around is important if you’re planning to move.
For refinancers, on the other hand, you’ll want to guarantee that your new rate is lower than your existing one, and that you’ll save enough to recoup your closing costs and other fees in a reasonable amount of time. You’ll also want to factor in how long you plan to stay in the house, and how much time is left on your existing loan before resetting the clock with a refi.
Will shopping for a mortgage hurt my credit?
When mortgage lenders check your credit report, the credit reporting bureaus record it as a “soft” inquiry. This means it makes an insignificant dent on your credit score that eventually goes away. Any credit checks by lenders within a 45-day window count as a single soft inquiry on your credit report.
How to choose a mortgage lender
To find the best mortgage lender, compare as many offers as you’re comfortable devoting time to. Closely compare the loan estimates side by side. Take a mental magnifying glass to all costs listed, and consider them and your budget before choosing which lender to work with.
You’ll do plenty of leg work to find the best deal, so once you’ve chosen a mortgage offer, consider locking in your rate to guarantee it doesn’t change before you close.
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