How to Find and Get the Best Mortgage Rate

September 9, 2010 No Comments »

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Looking for the best mortgage rate? We’ve all heard about the super-low mortgage rates, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty disappointing or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The key to all the methods is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Tip: Even if you get it wrong the first time around, you can always look into refinancing to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage!

Advertised Mortgage Rates Are Best Case Scenario

One important thing to note is that the mortgage rates you see advertised are often best-case scenario, not necessarily the average interest rate being extended to borrowers.

By best case, I mean an owner-occupied, single-family home, purchase or rate and term refinance, 800 credit score, huge down payment, and so forth.

These types of loans can be closed virtually anywhere, so banks will be eager to offer a super low mortgage rate.

Conversely, if you’ve got poor or marginal credit, and need financing on a 3-unit investor-owned condo with little down, you’re going to have a hard time obtaining a low mortgage rate, let alone a mortgage.

You Can Get the Best Mortgage Rate if You’re the Best Borrower

Before you go asking for the best, consider if you’re putting your best foot forward. Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it?

Those who actually present the least risk to lenders are the ones with the best chance of actually securing a great rate.

If your credit score is 760 and above, you’re pretty much in the clear in that department; if it’s below 700, you may want to pay off some high credit card balances or look into fixing any errors before applying for a mortgage.

Without question, your credit score can move your mortgage rate significantly, and it’s one of the few things you can actually fully control, so keep a close eye on it.

Documentation type can also push your interest rate higher, that is, if you fail to provide much of it.

While stated income loans may make life easier, going full doc will afford you the lowest rate, so do your best to provide income and asset documentation if possible.

Another factor where you have some semblance of control is down payment; generally, the more you put down, the lower the mortgage rate, as pricing improves at certain thresholds like 65 percent loan-to-value, 70 percent loan-to-value, and so on (see mortgage adjustments for more on that).

If you can put more down, you’ll typically get a lower interest rate or more financing options, though this doesn’t mean it’s necessarily the best option for you.

This can be especially important if your loan size is close to the conforming loan limit, as jumbo loans price about one percentage point higher or more.

Things like property type and occupancy can bump your mortgage rate higher as well, but obviously you don’t have much control over these if you already own the property.

Of course, if you’re still shopping, understand that condos are more difficult and expensive to finance in many situations, as are multi-unit and investor-owned properties.

Along those same lines, the reason for obtaining a mortgage will affect your given rate; if it’s a purchase or rate and term refinance you should qualify for the lowest rate, but a cash-out refinance will generally carry adjustments that push the rate higher.

Additionally, many of the advertised rates require that you pay mortgage points, meaning you have to come out-of-pocket to actually snag the rate.

So now that we know mortgage rates aren’t really as low as they claim in the real world, let’s look at some practical ways to get closer to those magical rates you see advertised.

Try a Mortgage Broker to Access Unadvertised Rates

Sure they’ve taken a lot of flak lately, but if you work with a mortgage broker, you can have them shop your loan scenario with a large number of banks and lenders to find the best rate.

This means you get your own personal mortgage rate comparison shopper to help you out with your search, instead of having to call each bank up one by one. Brokers do the work for you, so you don’t need to shop yourself.

They also have access to wholesale mortgage rates, which could be priced below retail rates, so you might end up with a better deal.

Just make sure you find a reputable broker to work with since the industry is somewhat unregulated, meaning accountability and trust may be a concern.

[Mortgage brokers vs. banks]

Comparison Shop Online (and Offline) for the Best Rates

If you want the best mortgage rate, shop around. I can’t stress (or say) this enough!

Get quotes from mortgage lenders online and inquire about rates with your local bank(s) and/or credit unions.

Just be prepared to get bombarded with phone calls and e-mails from interested parties looking to sell you the best rate.

They’ll probably lay off after a few days (or weeks), but the more you shop, and the more you tell others about yourself and your loan, the more you can expect to be contacted, sometimes relentlessly.

Of course, if it saves you thousands of dollars on your mortgage, the short-term pestering could be well worth it.

Zillow’s Mortgage Marketplace May Have Good Rates

Assuming you still want to shop around after those words of warning, consider using Zillow’s Mortgage Marketplace, which allows you to shop for mortgage rates anonymously.

You simply fill out a rate request form and the lenders pitch their offers to you.  This is ideal because once your information is out there, it’s out there…in other words, your phone may never stop ringing.  And your e-mail inbox might reach capacity.

Okay, I’m semi-joking, but still, it’s nice to divulge as little as possible about yourself until you’re ready to actually work with someone.

Just watch out for bait-and-switchers once you’ve made contact.  It’s more common than you might think to be told one thing and receive something entirely different.

What Is a Good Mortgage Rate?

Once you decide what type of mortgage you want, research rates for that particular product extensively.

For example, if you want a 30-year fixed, shop around to see what banks and lenders are offering for that loan program. Look at dozens of websites to see what the going rate is.

Then if you know your loan is low-risk, based on the criteria explained above, you’ll have a better idea as to where your mortgage rate should be and can argue accordingly.

[What flavor is your mortgage?]

The definition of good will certainly vary depending on loan program and borrower profile.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate.

Remember, the more you know about your mortgage, the better off you’ll be when making your argument for a reduced rate. Being confident that you deserve a good rate can go a long way, especially if you can hold your own in the conversation and state your case.

One final note, and this is a biggie: don’t forget the fees…your mortgage rate may be low, but it could come at a huge cost.

In summary, be sure to look beyond the mortgage rate itself – closing costs (loan origination fee, mortgage points) can add up quickly and greatly distort the mortgage rate you ultimately receive.

It’s not really apples-to-apples if you had to pay thousands of dollars to get a given rate that might be better than your friend’s rate, assuming they paid nothing at closing.

The quality of the loan provider is also very important, especially if it’s a purchase-money mortgage.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

If the lender lists the mortgage rate along with the APR (which includes certain fees), find out exactly what fees are included in the calculation and which are not. All are relevant and can greatly impact the true cost of your deal!

Read more: What mortgage rate can I expect?

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