Youâ€™ve heard it before.
Buying a home is a big financial commitment.
Perhaps the most important part of that commitment is your mortgage.Â But how much thought have you given to searching for the right mortgage rate?
If you're like many homebuyers, not nearly enough. According to the U.S.Â government, nearly half of all consumers get their mortgage from the first lender they contact.
Even those who call multiple lenders typically apply with only one.
Home loanÂ shopping is nearly asÂ important as finding the right home. It takes time, butÂ hereâ€™s a shortcut: rule number one is calling -- and requesting written quotes from -- multiple lenders.Click to see today's rates (Jan 16th, 2017)
Rate is not the only thing you should shop for, however. Lenders specialize in many aspects of home loans, not just rate.
It's true that some lenders undercut competitors on rate, while others charge more for white-glove service.
But there could be other differences between lenders too. Rural mortgage companiesÂ might excel at small conventional 30-year fixed loans, while a big-city mortgage company doles out jumbo loan amounts up to $10 million.
Still others specialize in government-backed products like VA home loans and FHA mortgages.
If you don't shop around before selecting a mortgage lender, you could end up with a company that does not specialize in the type of loan that is best for you. For instance, if you have military experience, you may not want to even consider a lender who does not offer VA mortgages.
That could be expensive experience â€“ in time and money.
Finding the right lender by luck is unlikely. Make sure to speak with at least five lenders licensed to do business in your state.
Then apply for loans with a few of them. That way you can compare the costs of taking out a loan and choose the mortgage lender that offers you the best value.Click to see today's rates (Jan 16th, 2017)
The government recentlyÂ released the results of a study showing that 47 percent of home buyers don't compare lenders when looking for a mortgage loan.
As the reportÂ notes, consumers spend more time shopping for a new smartphone than they do when taking out a mortgage loan of hundreds of thousands of dollars.
The governmentÂ found, too, that 77 percent of borrowers apply with just a single lender or broker instead of filling out applications with multiple loan professionals.
Not shopping can be a costly mistake. Consumers often land a lower interest rate by comparison shopping among lenders.
For example, it's not uncommon for mortgage lenders to quote interest rates on a 30-year fixed-rate mortgage which vary by more than 50 basis points (0.50%) from one another.
If you choseÂ the rate at 4.00 percent on a 30-year fixed-rate loan instead of the one at 4.50 percent, you wouldÂ save about $60 per month on a $200,000 home loan. That comes out to about $3,500 in savings in the first five years of your loan.
You'd also pay an additional $1,400 toward your loan's principal balance during those five years.
Why donâ€™t more people shop for the right lender? It does take more time. But spending that time can result in substantial savings. So maybe consumers donâ€™t know how to shop for a loan.
Fortunately, shopping isnâ€™t that difficult. Here's a quick guide which shows how to shop for a mortgage.Click to see today's rates (Jan 16th, 2017)
Before calling any mortgage lender, look at your own financial situation to determine what loan type makes the most sense.
Do you need lower monthly mortgage payments? Then a longer-term loan, such as a 30-year fixed-rate loan, might make the most sense.
Are you more interested in paying as little interest as possible? Then a shorter-term loan, along with the lower interest rates that go with them, might be the better choice.
Next, consider whether you might want to apply for a government-insured loan. If youâ€™re a military veteran or an active-duty service member, you might qualify for a VA loan.
These loans are attractive because they require no down payment. If youâ€™re not a veteran and you can only come up with a small down payment, an FHA loan could work out well. These loans require a down payment of just 3.5 percent of a homeâ€™s purchase price, and donâ€™t require a high credit score.
Once youâ€™re armed with this information, itâ€™s time to call lenders. Ask key questions:
A loan officer who is a veteran of the industry should know how to solve almost any problem during the lending process.
You want to work with a lender that offers you plenty of options. Fortunately, most lenders today offer a wide range of conventional and government-insured mortgage programs.
There's no way for a lender to give you an exact interest rate over the phone. Lenders need to run your credit first and verify your financial information. But lenders should be able to estimate the average interest rates they are charging borrowers who have credit similar to your estimated score range.
Remember, though, that mortgage interest rates fluctuate. The rate you are quoted on the phone might rise or fall the next morning.
This is a big one. Closing costs are the fees that lenders and third-party sources charge to originate your mortgage loan.
You can expect to pay from two to five percent of your loan amount in closing costs. For a loan of $200,000, that comes out to $4,000 to $10,000.
That's a wide swing, so you'll want to ask lenders for a written Loan Estimate, which is the government-mandated form consumers need to receive after applying for a loan.
The Loan Estimate details actual and estimated costs that the lender must stick to, within a certain range, if they issue the loan.
Use Loan Estimates from multiple lenders to make an accurate comparison.
Interest rates can change quickly. You might want to protect your rate by locking it in. Usually, youâ€™d do this after signing a purchase agreement to buy a house.
If your lender has quoted you a rate you like, you can ask that lender to lock it in place for a set amount of days, usually 30 to 60, but sometimes up to 90 days or more. Your rate wonâ€™t change even if rates rise.
Locking in comes with risk too, however. If rates drop, you are usually stuck with your rate. And, locking for a long period of time costs more than locking very close to your closing date.
Itâ€™s best to get pre-approved for a mortgage before you start shopping for homes.
When a lender issues a pre-approval, you know exactly how many mortgage dollars you can get, and, therefore, how much home you can afford to buy. In the pre-approval process, youâ€™ll send your lender copies of such documents as your most recent pay stubs, bank-account statements and tax returns.
Youâ€™ll also give your lender permission to run your credit. Once your lender has done this, it can pre-approve you for a specific loan amount. Once you find your home and sign a purchase agreement, youâ€™ll then have your mortgage financing in place.Click to see today's rates (Jan 16th, 2017)
Often, itâ€™s not good enough to just talk to lenders. Written quotes are the only sure way to compare rates and fees.
To apply for a loan, you'll fill out what is known as a Uniform Residential Loan Application, or Form 1003. This form, which asks for certain financial and personal information, starts the loan process. Most lenders don't charge you for completing this form.
Be wary of those that charge upfront, non-refundable fees to apply, other than fees for hard costs such as a credit report. These fees are meant to dissuade you from choosing a lender that might offer a better value.
To apply, you'll also have to send in copies of financial documents that lenders can use to prove your income and debts. This includes your most recent bank-account statements, last two paycheck stubs, last two years of tax returns and last two W-2 statements.
Once your lenders have this information, they are required to within three business days send you the Loan Estimate. Once you have these forms from more than one lender, it's easy to compare closing costs and interest rates.
Yes, applying to more than one lender does take time. But the extra time it takes to make three phone calls instead of one could save you thousands of dollars. Isn't it worth it?
Lenders are eager for your business, and have great flexibility to undercut the rates and fees offered by competing lenders.
Get rate quotes now from multiple lenders now. A quote request takes just minutes, and the savings you receive from your effort could be substantial.Click to see today's rates (Jan 16th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)