When to shop for a mortgage lender
Most home buyers know to shop around for their mortgage lender. But timing your shopping? That’s a different story.
Should you start researching lenders early on, before you begin hunting for a house? Or wait until you’ve found that dream home? Somewhere in between?
Mortgage expert Shivani Peterson tackled these questions and more on a recent episode of The Mortgage Reports Podcast. Here’s what she had to say.
Listen to Shivani on The Mortgage Reports Podcast!
Why shopping for a lender is important
Choosing the right lender is critical if you want the best deal on your home loan. Mortgage rates can vary significantly from one lender to the next, so finding one with good pricing can reduce both your monthly payment and your long-term interest costs.
Beyond this, though, there are other factors to consider.
The best time to shop for a mortgage lender is during preapproval. Whoever has the best rate when you’re getting preapproved is very likely to still have the best rate when your offer is accepted
“You also want someone you feel comfortable with, and someone who has access to a lot of different loan programs,” Peterson said. “Your mortgage lender is going to be a very big piece of the process as you’re shopping for a home.”
Your agent is certainly a big piece of the puzzle, too. But as Peterson put it on the podcast, your lender is with you a lot longer — so making the right choice may be even more vital.
“A lot of people think that mainly their Realtor is the person who held their hand, but I would say your mortgage lender is even more important,” she said. “You’re going to live with that mortgage potentially for 30 years. Plus, you don’t live with the price you paid for the home — you live with the monthly payment, which comes back to your mortgage loan officer.”
The best time to shop is during preapproval
Peterson says the best time to shop for a mortgage lender is when you get preapproved for a home loan. Preapproval is the first stage of the mortgage loan process, and it usually happens before you start house hunting.
There are a few good reasons to shop for a mortgage lender during preapproval. For one, waiting too long can delay your closing.
“If you wait until your offer is accepted, you’re likely in a 30-day escrow and your lender needs to get to work immediately — as in the minute your offer’s accepted — to get the appraisal going and get your documents updated and through underwriting,” Peterson said. “You don’t really have a few days to waste at that point to shop around with lenders.”
On top of this, there shouldn’t be much difference in which lenders are offering the lowest rates. The nominal rates they’re quoting can change based on market conditions, of course. But if they have the lowest rates now, they probably still will three months from now, too.
“Even though the market changes every day, if a lender is very competitive on any specific day, in theory, they should be competitive in the future as well,” Peterson said. “So whoever has the best rate when you’re getting preapproved is very likely to have the best rate when your offer is accepted.”
Tips for choosing a mortgage lender
Before you fill out your preapproval application, Peterson recommends having “at least a phone call” with each lender you’re considering.
“See if you get a good feeling from them,” she said. “Ask them about the loan programs they offer. Ask them about their experience level. Ask them about how they help buyers and what unique strategies can they offer you.”
If you’re not feeling the connection, contact a few other options.
“Give another loan officer a call,” Peterson said. “See who you feel the best with and who seems like they’re going to be the least pushy, least sales-focused and keep your best interests in heart.”
How to be a smart rate shopper
When you do apply for a preapproval quote, ask the loan officer not to quote you at the absolute lowest rate they can go.
With mortgage rates as volatile as they are, there’s a good chance that rates may rise by the time you purchase. Getting quotes with those higher rates already baked in can ensure your loan amount is still enough to cover your future purchase, should that occur.
“Do not have them preapprove you using that lowest rate,” Peterson said. “Rates are changing daily quite a bit, so if they preapprove you with the lowest possible interest rate and tell you your max price point based on that, your max may actually drop if rates go up while you’re shopping.”
If you instead ask them to preapprove you about 50 basis points higher, Peterson said, “You can still afford to shop in that same price range.”
Your next steps
Shopping around for your mortgage lender is a proven way to save money when you buy a house. Buyers who skip this step could be missing out on thousands of dollars in long-term savings.
Start shopping for a lender early on — before you begin house hunting — so that you won’t have to scramble when you put in an offer. If you start now, you can pin down the lowest interest rate and have financing lined up as soon as you find a home you love.