An Insider’s Guide to Mortgage Shopping

Shopping for a mortgage, even if done properly, is a difficult and time-consuming endeavor that can save you an enormous amount of money. To do so improperly, is a total waste of time and money and perhaps, lost opportunity. A mere quarter of one percent can have a significant impact on the cost of a mortgage.

Over the years I have talked to literally thousands of people shopping for mortgages. The number of people that actually knew how to shop for a mortgage, I could count on both of my hands. Not knowing how to correctly shop for a loan can cost you money unnecessarily in the form of fees, rates and terms. Shopping for loans the wrong way can actually hurt your credit score and that can cost you a tremendous amount of money in the long run.

Don’t Hurt Your Credit Score

The first thing that you should do is obtain your own credit report and scores from all three credit bureaus. You can find links to the bureaus on this site for your convenience. Unlike when a mortgage company pulls your credit, when you pull your own credit directly from the credit bureaus, namely Experian, Equifax and Trans Union, your score is unaffected by the credit pull. A mortgage company cannot accurately quote you on any program without knowing at least two of your credit scores. It is best that the mortgage company have all three scores and it is best that you provide them with the score so they don’t and won’t have to pull your credit.

You should also avoid internet mortgage companies that encourage many lenders to compete for your loan. Often times your credit will be pulled by multiple companies, sometimes without you even knowing about it. It is essential for you to know that an excessive number of credit pulls will hurt your credit scores. One point up or down on your credit score can determine whether or not you get a mortgage at all, let alone a competitive rate.

Compare Apples to Apples

Determine whether you can document your income and assets. It is important to compare loans of the same class. Your shopping results will be flawed if you compare different classes of loans to each other. Loans that do not require income and asset verification will always cost more than loans that do require such proof. The same is generally true for levels of loan amounts to property value. Loans for lower loans amounts compared to the appraised value, will always be less expensive than ninety or one hundred percent loans.

Know what type of property you are financing. Non owner occupied properties or investment properties cost more to finance than owner occupied properties. Make sure you are comparing identical loans.

Be sure to compare no fee loans to no fee loans, no point loans to no point loans and total fees to total fees at the same interest rate on the same program.

You Have One Day To Do It

Interest rates change every single business day and sometimes, they change more than once per day. When you know all of the following;

  • Your credit scores
  • Whether you are able or not able to document your loan
  • The approximate value of the property being financed
  • The type of loan you are shopping for, (ie, 30 year fixed, 5/1 adjustable etc.)
  • The cost in TOTAL fees to get the rate (mortgage company provides this)

You can inquire like this. “I have a mid credit score of 685, I can prove my income with W-2 forms and my savings with bank statements. My house is worth $300,000 and I want to borrow $150,000. I would like your 30 day rate on a thirty year fixed rate mortgage with no points. What are the total fees for this loan?”

Now you are ready to compare mortgage company quotes. In order to do this ACCURATELY all of your quotes need to be submitted to you on the same day. Interest rates change daily so shopping day to day will almost always provide inaccurate results.

Other Considerations

Shopping for a mortgage is more than just shopping for the lowest rate. Other factors that affect the cost of a loan are whether or not the loan requires pmi or private mortgage insurance and the presence or lack of a prepayment penalty.

Additional factors to consider include the ability of the mortgage company to close the loan quickly, a rate lock doesn’t do you any good if your mortgage company can’t close your loan in time. Rates in the industry generally do not vary much from source to source on a same loan class basis, if a rate sounds too good to be true, it probably is.

If you don’t shop the correct way, you might be better off not shopping at all. At the very least, you won’t hurt your credit scores, waste a lot of time and maybe even money. Often we think we want the lowest price when in reality we really want the best value. Working with a company you can trust to do the right job for you can certainly be worth an extra quarter percent on a loan or a couple hundred dollars in fees.

Good luck in finding the right program for you. I sincerely hope you find this information to be of value and that you consider Express Home Mortgage when shopping for your loan.