As a followup to last week’s article on whether or not you should pay off your mortgage early, I thought I’d talk a bit about how to find the best mortgage rates. To date, we’ve bought two houses, sold one, and refinanced three times. Thus, we have a good bit of personal experience when it comes to finding a mortgage. What follows are some tips that we’ve picked up along the way.
Check your credit
Given all that’s transpired over the past year or so, it should come as no surprise that your credit score is more important than ever when it comes to getting a great deal on a mortgage. As such, your first step should be to check your credit report and fix any errors that you find. Just be sure to give yourself enough lead time to get things sorted out. Here’s why…
I recently ran across a panicked letter that I faxed to Chase back in 2001. As it turns out, I checked our credit report before applying for our first mortgage and discovered a delinquency that had never happened. When I contested this with the credit bureau, Chase came back claiming that the information was accurate. Thus, the black mark stayed on our record.
Because I didn’t discover this problem until the last minute, time was running short, and I had to quickly resolve the problem directly with Chase. I ended up faxing them a letter the day before we applied for our mortgage explaining the situation and essentially begging them to help us out. In the end, we got the problem taken care of, but we could’ve avoided a lot of stress by simply starting sooner.
Beyond making sure your credit report is accurate, you might also want to check out your credit score itself. Unfortunately, while you’re legally entitled to free access to your credit report, the same is not true of your credit score. The good news is that you can get a free peek at your credit score if you’re willing to jump through some hoops… Simply sign up for a free trial at FreeCreditReport.com or MyFICO. Just be sure to cancel before you get charged.
Get the lay of the land
If you haven’t already decided what sort of mortgage you’re looking for, online mortgage marketplaces are a great way to get a feel for the prevailing rates on different types of mortgage – you can quickly compare rates on fixed vs. adjustable rate mortgages, 15 vs. 30 year terms, etc. With that info in hand, it’s much easier to identify the best option for your situation.
Find the best mortgage rate
Once you know what you’re looking for, check the mortgage rates offered by your local bank or credit union. Their rates may or may not be competitive, but you’ll never know if you don’t ask. Beyond that, you should consider asking friends or family if they can recommend a reputable mortgage broker.
While a mortgage broker isn’t absolutely necessary, working with one can make finding the best mortgage deal much easier. Ideally, you should contact more than one broker and see what they can offer you. Just be sure to ask for a “good-faith estimate” from each so you can make an informed comparison based on the full rundown of rates, fees, etc.
Once you’ve found what appears to be the best deal, start shopping it around. Go back to your bank, any other brokers that you’ve had contact with, etc. and see if they can beat it. Even if they can’t beat the rate, they might be able to sweeten the deal by knocking some money off your closing costs, etc. Remember, you’re looking for the best overall deal, not just the lowest rate. A bit of extra work here can pay huge dividends.
Of course, you should also be comparing these offers back to the rates that you found online. Just be careful… I’ve found that some lenders are less than honorable when it comes to making good on the rock bottom rates that they advertise online.
Some words of warning
If you’re buying new construction, you might feel some pressure to use the builder’s “preferred” lender. While they’ll likely offer to throw in some freebies if you use their guy, you probably won’t get the best overall deal if you simply say “yes.” Instead, negotiate with them on this point.
When we bought our first house, we agreed to use the builder’s lender, but only if they matched the best deal we could find. We also negotiated to get the freebies even if their mortgage guy couldn’t match our best deal. This put a lot of pressure on them to deliver, and they ultimately came through.
Finally, when it comes time to close, be sure to read everything they put in front of you. You might feel like uncomfortable making the closing attorney sit there while you read through all the paperwork, but that’s their job. If you simply can’t stomach doing this, you at least need to go over your HUD-1 settlement statement (which lists all the details of your deal) with a fine-toothed comb.
When we bought our first house, we had an 80/10/10 “piggyback” mortgage. While everything was fine with our first mortgage, the settlement statement listed the wrong (higher) rate for our second mortgage. Obviously, this could’ve caused a lot of trouble if we hadn’t been paying attention.