How to Shop Interest Rates
Must have information when shopping for interest rates?
First thing you should do is order a current copy of your credit report, with scores, from the 3 credit reporting bureaus before you start shopping mortgage rates.
Almost every single, albeit well meaning shopper, gives some incorrect information when they first start shopping for mortgage rates.
Each time your credit is checked the credit companies may reduce your score a little. If all credit checks are done within 30-45 days for the same reason, (home loan, car loan, etc..) you should avoid any reduction in your cedit score.
Once you’ve decided on the mortgage company and loan officer, and only then, go ahead and let them run their own copy of your credit report.
Most people call 3-5 mortgage brokers when shopping for rates and say I have A+ credit, what’s your interest rate for today.
Almost every borrower is not going to hear an interest rate for their particular situation. The interest rate they will quote you is the lowest rate possible for a borrower with perfect credit, low debt ratios, good job history and 20% or more down payment.
Of course you’re also going to run into the loan officer whose rate is far lower than everyone else’s. Other loan officers are quoting 6.0% and one particular loan officer says he has the connections to get you 5.25% (for the same fees/costs).
What do you do? Take it, right?
Heck “NO”, you run from this loan officer/mortgage company as fast as you humanly can, we’re not kidding around on this one “RUN”.
There are many situations in life where the good old phrase “If it sounds to good to be true, then it is” fits. This is definitely one of those times.
There is no secret lender this loan officer has (that no one else seems to know about) with rates three quarters of a percentage point below everyone else’s.
It’s a teaser rate to get you in the door, period! Once there, they will undoubtedly inform you that “your situation” doesn’t warrant that rate, so of course your rate will have to be higher than originally quoted. Most of the time you will end up paying much more then if you had gone to one of the loan officers who gave you an honest upfront quote.
Borrowers should shop a minimum of 5 brokers, disregarding the lowest and the highest interest rates of the 5. Call back the 3 remaining loan officers.
Now you can give more in-depth information and try to decide which one you believe will work the hardest to get the right loan for you.
Look it’s a game. Plain and simple; you want to pay as little as possible and they want to earn as much as possible! It’s all about finding the loan officers and lenders that play the game honestly.
Additional questions to ask when shopping rates
- What type of mortgage is it – fixed rate, adjustable rate, FHA, VA, other?
- What is the loan term (length of loan)?
- What is the starting interest rate?
- Can the balance of the loan rise?
- Does the loan payment include an escrow?
- What are the estimated total payments(principle, interest, taxes, insurance, PMI)?
- What are the estimated fees and other closing cost?
- Does this loan have a prepayment penalty?
- Does this loan have a balloon payment?
- Does the loan have an adjustable rate?
- When is the first adjustment?
- What is the most the rate can be at the first adjustment?