If you’re one of the relatively few Americans that’s in the market to buy a house right now instead of put one on the market, you’ll find yourself happening upon some fairly enticing mortgage rates.
Rates continue to hover at the low end of their historical range and savvy borrowers can still lock in a terrific long-term rate if they go in prepared and know how to get one.
Knowing exactly what information you should have going into the process and the leverage you hold as a borrower will help you potentially save thousands of dollars over the life of the loan.
With that having been said, here’s your checklist for finding the best mortgage rate available.
What You Should Have In Hand Before You Talk To A Lender
Know your credit score
A borrower’s credit score is more important than ever in determining the rate he or she can get. If you have a FICO score of 740 or better, you’re probably in line to receive the lender’s best pricing. Below that, you’re looking at a higher rate than what is typically published online or in the newspaper.
If you don’t know your exact score, check out Bankrate’s FICO score estimator (www.bankrate.com/brm/fico/calc.asp) to get an estimated range. This will be the first step in concluding whether or not you may have trouble getting a loan at all.
Know how much you want to borrow
This is important for two reasons.
First, if you’re putting down less than 20%, you’re going to be hit with PMI and possibly an increase in fees or the rate. Lenders want to be sure they’re going to get their money back. The more you borrow, the more uncertainty the lender may have.
Second, if the amount you’re planning on borrowing requires you to take a jumbo mortgage instead of a conventional mortgage, expect a higher rate. Lenders want to be compensated for the additional risk they’re taking in having to deal with moving a higher-priced property should the mortgage default. The current limit on a conventional mortgage is $417,000 (the limit is higher in areas outside the contiguous United States and temporarily higher everywhere thanks to the economic stimulus package).
Know how long you’ll be at your house
In most cases, it’ll be advantageous to lock in a fixed-rate loan at today’s low rates. However, if you know you’ll only be in the house for a short time, an adjustable-rate mortgage may be the better play.
ARMs typically carry a rate slightly lower than fixed-rate mortgages. If you plan on selling the house before the ARM starts adjusting, you can come out ahead. But be careful with ARMs. Once the fixed-rate period is over, your monthly payment can adjust higher and leave you paying hundreds of dollars more per month.
Know what mortgage rates are at other financial institutions
If you have an idea of what others are offering, you’ll know whether or not your lender is presenting you with a reasonable rate. Go to Bankrate’s website (www.bankrate.com) to get a list of mortgage rates in your area.
This is also a particularly helpful site if you’re searching for a lender. And that brings us to…
Where You Should Go To Get Your Mortgage
The best place to start is oftentimes your local branch. A bank will likely be able to offer you the most complete spectrum of products and checking with at least three in your community allows you to comparison shop for the best rate.
This may be an especially attractive option if you have a current relationship with the bank. Many banks are willing to “package price” a mortgage if you have a checking or investment relationship with them already.
If you really don’t feel like investing the time in shopping around for a good rate, consider using a mortgage broker. They will take your information and shop it around to several lenders in order to get you the best deal.
Be sure though to compare the rates the broker offers you from a financial institution with the rates from the institution directly. Brokers earn a commission through referring you to a lender and that lender may increase the closing costs or rate quoted to you to make up for it.
Many people don’t automatically think of credit unions when it comes to getting a mortgage but if you have access to one you might find some of the best rates are available.
Credit unions can offer the benefit of better rates and potentially lower closing costs for their members but, as always, compare rates and fees across all options before making a final decision.
Check out an online credit union locator (such as www.creditunion.coop/cu_locator/index.html) to find a credit union near you.
What You Should Do Once You’re With The Lender
People too often forget that the rate the lender presents to you is not necessarily their final offer. Borrowers have the right to haggle over their mortgage rate as much as they do the price of a house or a car.
If you present recent rates from a competitor, the lender may be able to match. If you are willing to pay points on the loan, the lender may be willing to knock down the rate a quarter-point or more. Everything is fluid until the final paperwork is signed.
Finding the right mortgage and securing the best terms, costs, and rates are every bit as important as the price you pay for the house itself. Interest costs over the life of a mortgage can easily run in the hundreds of thousands of dollars so a little time invested in finding a lower rate can save you a lot of money in the long haul.
Knowledge is power when it comes to shopping for a mortgage. The time you spend now will pay dividends later so you can spend many years enjoying your home instead of worrying about how to pay for it.