When it comes to finding a mortgage, not shopping around could mean you’re leaving a lot of extra money on the table. A shocking number of first-time buyers go with the first home loan offer that comes along. But that could be a big mistake.
Shop and Save
When you consider the potential savings gained by shopping for the best mortgage rate, it’s shocking how many don’t put in the effort to weigh their options. The Consumer Finance Protection Bureau reports that nearly half of all mortgage borrowers don’t shop around when looking for a home loan.
Buying a home is likely to be the biggest purchase you ever make, and you’re going to be working at paying off your home loan for 15, 20, or 30 years. Depending on the details of your loan, the interest rate, fees, and many other factors could vary widely. Consider options from various lenders.
Shopping Tips
Most experts agree that it’s best to look at at least three different lenders to make sure you’re getting the best deal on your mortgage. That should include your own bank and at least one national lender.
Mortgage rates can vary quite a bit from one lender to another, and often change from one day to the next, so all that shopping around can pay off. Just a fraction of a percentage point can add up to thousands of dollars over the lifetime of your loan. Keep a few things in mind as you look for the best home loan:
- Gather your financial documents. Have all of your financial documents gathered before you start meeting with lenders. Documents like pay stubs, bank statements, and tax returns will be needed before you can secure a loan.
- Know your credit score. Your credit score is one of the most important factors that determine whether a lender will be willing to offer you a loan, and can significantly impact your mortgage rate. Know your score before talking to lenders, and take steps to improve your credit score if necessary.
- Compare quotes. Most lenders will be perfectly willing to give you a rate quote or price quote free of charge with no obligations. This is not the same as pre-approval, which is a more involved process; however, getting quotes will give you an idea of what you may qualify for. Be sure to explore online options for comparing home loans as well as talking to individual lenders.
- Consider added fees. The big number that you will be looking at when you compare loans is the mortgage rate. As important as that number is, be sure not to stop there. Get details about any extra fees, conditions, and costs associated with your loan so you can determine the true cost of your mortgage.
- Get pre-approved. With your credit report and financial documents in hand, you will be able to get pre-approved for a home loan. This is a crucial step that will give you a solid picture of how much a particular lender is willing to offer, and is essential to determining a budget for buying a home.
Forbes recently reported that buyers who compare one extra quote could save $1,500 on their home loan and that buyers who compare two extra quotes could save $3,000. No matter how you look at it, the numbers are very clear about one thing: it pays to shop around.
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