Most people will need a mortgage to buy a home. That means that not only do you need to shop for a home, you need to shop for a home loan. But a survey of 2013 borrowers by the U.S. Consumer Financial Protection Bureau found that almost half of borrowers didn\u2019t shop around before settling on a mortgage.<\/p>\n
They should. In fact, you may find more loans to choose from than you do houses.<\/p>\n
\u201cDefinitely shop around,\u201d says Valentin Saportas, CEO and co-founder of MortgageHippo, a Chicago-based online mortgage application service that links buyers with mortgage brokers. \u201cDon\u2019t just go with the first option that you get. Being able to save even a little bit of money in your monthly payment definitely adds up.\u201d<\/p>\n
You should start looking for a mortgage professional before searching for a house. You want to make sure your credit is in order because mistakes can take months to correct. You also want to know how much house you can afford. You can run calculations online, but a good mortgage professional will better help you determine which loan is the best fit for you.<\/p>\n
Finding the best deal on a mortgage can be a challenge because fees and rates change daily, sometimes more than once a day.<\/p>\n
Whether you\u2019ll get the best deal from going directly to a bank, a mortgage lender or a mortgage broker often depends on your situation, the mortgage pro handling your case and what\u2019s being offered at the time. That means talking to actual people on the phone or in person, not just filling out an online form.<\/p>\n
\u201cThere\u2019s way too many variables in mortgage lending today to automate or streamline,\u201d says Casey Fleming, author of \u201cThe Loan Guide: How to Get the Best Possible Mortgage\u201d and a mortgage broker in the San Francisco Bay Area. \u201cThe online piece is nothing but a lead generation tool, and they hand it off to a real mortgage lender. The money comes from the exact same place, and the same people are involved.\u201d<\/p>\n
You can buy a home with as little as 3 percent down \u2013 and nothing down if you\u2019re a veteran. But if you put less than 20 percent down, you\u2019ll need private mortgage insurance (or the Federal Housing Administration equivalent) in most cases, which can add roughly $100 to a monthly payment on a $100,000 home.<\/p>\n
To find a mortgage professional, start by asking friends, colleagues, relatives and your real estate agent. You might also ask any finance professionals you work with, such as accountants or financial advisors. If you\u2019re a member of a credit union, ask there. Some credit unions and local banks do their own mortgage lending and others contract with brokers. Call the banks where you have accounts.<\/p>\n
In general, banks have the fewest options available because they offer only their own products, but they may be more flexible if they\u2019re lending their own money \u2013 and they may make a deal if you have substantial assets. \u201cYou could get a really good offer, but you have to dangle the assets,\u201d Fleming says.<\/p>\n
Mortgage brokers offer the largest number of options, since they can shop your loan among many lenders. \u201cIf your loan can be done, a broker can find a place to do it,\u201d Fleming says. \u201cMy opinion is to go to a really honest broker. Without doubt, they are going to have access to better pricing than anyone else.\u201d<\/p>\n
While the rates and fees offered by lenders are usually comparable, lenders that see a slowdown in business may offer better pricing, and a good broker will grab those deals.<\/p>\n
The difficulty of the mortgage process, including the need to gather reams of paper documents, is one of the reasons for the growth of lending that occurs at least partly online. \u201cCustomer service doesn\u2019t just happen on the phone or in person,\u201d Saportas says. Once MortgageHippo links the borrower with a broker, the parties can decide how they want to communicate.<\/p>\n
SoFi, a lender based in San Francisco, bills itself as the first lender to provide prequalification with any device, including a smartphone. \u201cWe believe that we are the only one able to offer a personalized quote within one minute on any device,\u201d says Dan Macklin, co-founder and vice president of business development. \u201cThat\u2019s proving popular with the younger generation.\u201d Humans in California also are available if you prefer a phone consultation. \u201cWe like to think it\u2019s automated but with a human touch when you need it,\u201d he says.<\/p>\n
Here are 10 tips for getting the best mortgage deal :<\/strong><\/em><\/p>\n Compare apples to apples.<\/strong> When you get quotes from companies, don\u2019t look at just the interest rate. Look at the rate and all the fees, including points, origination fees and any other fees charged by the lender. A \u201cno-fee\u201d loan just means the fees are included in the rates.<\/p>\n Ask to see the Good Faith Estimate worksheet, not just the GFE.<\/strong> Many people consider the current Good Faith Estimate, required by law, to be confusing, and it is being replaced August 1 with what consumer advocates hope will be a more useful document. Until then, ask for the complete worksheet, and make sure it itemizes all the fees.<\/p>\n Interview the actual person who will handle your loan.<\/strong> That could be a mortgage broker, a bank employee or a loan officer. Ask about experience and qualifications. Is the person licensed (required for brokers but not bank employees)? Does he or she belong to the National Association of Mortgage Professionals or your state\u2019s mortgage professional association? Ask for references and look at reviews online. \u201cThe company does not matter as much as the originator,\u201d Fleming says. \u201cEven good companies hire really bad people.\u201d<\/p>\n Plan for costs that are not charged by the lender.<\/strong> Additional costs include title insurance, real estate transfer taxes and required escrows for property taxes and homeowner insurance. In some states, shopping for closing agents can save several thousand dollars, while escrow or closing costs are minimal in other states.<\/p>\n Make sure the lender offers the program that is best for you.<\/strong> Not all lenders offer FHA, VA or USDA Rural Development loans. Down payment requirements, loan-to-value ratios and credit requirements also vary by lender.<\/p>\n Get your free credit report before you start.<\/strong> This will not allow you to put your feet up on the desk and demand the best terms, as one commercial suggests, but it will let you know where you stand. \u201cJust because you have a 700 credit score doesn\u2019t put the ball in your court,\u201d says Donald Frommeyer, chief executive officer of the National Association of Mortgage Professionals and a loan originator at American Midwest Bank in Indianapolis.<\/p>\n Give the loan officer all details about your situation when asking for quotes.<\/strong> People who are self-employed, have suffered a foreclosure or recently changed careers especially need a good loan officer. \u201cOne of the toughest things for me is to tell a customer, \u2018Hey, I really can\u2019t help you,\u2019 but I always have a potential solution,\u201d Frommeyer says. \u201cI don\u2019t like to pull credit on somebody until I talk to them about what I can do.\u201d<\/p>\n Do you want to pay more upfront or get a lower interest rate?<\/strong> If you\u2019re planning to keep the loan for 30 years, it may make sense for you to pay more upfront to get a lower rate. If you plan to sell or are going to refinance in a few years, it may not.<\/p>\n Ask about what documents will be required.<\/strong> All mortgages require significantly more documentation these days. Find out what\u2019s required, and be prepared to provide it.<\/p>\n Know who you\u2019re dealing with when you fill out an online form asking for rates.<\/strong> Will you get phone calls from mortgage brokers trying to gain your business? Will you get quotes online or via email? Most online forms require you to provide significant personal information before giving you quotes (and no one can provide an accurate quote without knowing your credit store). Will the service pull your credit once you fill in the form or wait until after you have talked to someone? Both MortgageHippo’s and SoFi\u2019s automated systems rejected our freelance writer with good credit with no explanation, while a human broker would likely have suggested making a larger down payment or choosing a less expensive home.<\/p>\n