It amazes me that so many homebuyers who spent weeks, if not months, hunting around for the best home, don’t shop around as diligently for the best mortgage. According to the Consumer Financial Protection Bureau about seven in 10 homebuyers just apply to one lender. That’s insane! This is likely the biggest purchase of your life, and you aren’t going to make sure you comparison shop to save money? C’mon.
Some mortgage shopping tips:
Set Your Own Budget. Do not get sucked in by a mortgage lender telling you how big a mortgage you can qualify for. That’s irrelevant. Before you even start shopping for a home, you need to put some serious thought into deciding what size mortgage fits your financial life. A payment that is so big it makes it hard or impossible for you to save for retirement, or save for a child’s education is a mistake. Rather than focus on how expensive a home you can qualify for, I want you to aim for the least expensive house that meets your needs. The financial flexibility you will gain by not over-reaching is going to make a huge difference the rest of your life.
Comparison Shop. Don’t assume your current bank is going to roll out the red carpet and offer you the best deal. I want you to apply at three different lenders. Ask friends for recommendations of credit unions and community banks; they often can have better terms than big national banks. And by all means, throw an online lender into your mix as well.
If you don’t want to put the time into comparison-shopping, consider working with a mortgage broker. A good broker-again, poll friends and colleagues for recommendations-will shop around for you.
The advertised interest rate is a good starting point, but you also want to compare all the fees you will be charged for the mortgage. The good news is that beginning last fall, lenders now must give all applicants an easy-to-understand three-page Loan Estimate once you provide basic information.
Work with a Closer. When choosing a lender you want to go with someone who has a solid track record of getting the deal done ASAP. Some lenders can take for-ev-er to finalize a mortgage. That can cause all sorts of problems. When you make a bid on a home, you typically will agree to “close” within a specified period. In markets where sellers can choose from multiple bids, their agents will likely encourage them to consider offers that have financing from a lender who gets the deal done on time. Real estate agents can be a good source of intel: they know which lenders get the job done, and which drag their feet.