Whether you are planning on purchasing a home or refinancing your current home, the process to find a good interest rate is the same.
First decide what your target rate is. The simplest way to find out what the current rate is with 1 point is to visit the websites of few institutional lenders (Wells Fargo, Chase, Bank of America). By doing this, you will have a general idea as to the average rate in the current market. This would be merely research and only a beginning stage.
If your initial research discovered the current mortgage rate for a 30 year fixed is 4.75 with 1 point the next step is to decide whether that rate is a good target rate for your situation and if it is you are ready to move on to find your target rate at a lower cost.
Let’s define “points”. Traditionally, points were fees you paid to lower the rate. These fees were an addition to the normal lender fees. The way points are quoted these days is a little confusing therefore for purposes of simplicity let’s define “points” as the amount of money the lender will charge you for the loan. For example, if your loan amount is $300,000 and the loan costs you $3000 it would equal 1 point (1% of the loan amount).
On any home loan there are certain fees which are paid to the lender. These are: underwriting, processing, application fee, appraisal, recording etc. Pre-paid interest, homeowner’s insurance or property tax impounds are not fees from the lender and aren’t to be used in the “points” calculation.
In our example of current rates of 4.75 at a loan amount of $300,000 with 1 point ($3000) your goal is to secure that rate a lower cost. Shopping for your home loan from here on should be as simple as finding a lender who is willing to offer you 4.75 with less than $3000 cost (1 point). In the scenario we are using a “no cost loan” would be 4.75 with zero lender fees. Ideally, this is what you would want.
Finding a reputable lender or broker is a matter of doing a little research on the web. Start with Google and input the search term “mortgage rates”. Among the sponsored ads (the first three ads and eight on the right side of the page) you will find quite few offers. Most are from lead selling companies and will be easy to spot. The rates are unrealistically low and are there merely to collect your information. Stay away.
What you should look for is an ad offering similar rates as your target rate. When you find them, contact each company to confirm the current rate and cost. The lender you are looking for should give you a quote by asking you a few basic questions such as loan amount, value of the property, purchase price, credit rating, income etc. but not press for an application and definitely not your social security number. If they tell you they need this in order to “offer you the best rate” thank them for their time and move on.
A professional lender of broker will provide you current rate and fee information with a simple phone call. They will only request the information to provide you with the quote and nothing else.
You will have to make several phone calls to truly find out what the current rate is and what fees are being charged. From these calls you will find one or two lenders / brokers who are upfront and charge less fees. Some may have live rates on their websites which would be a big plus since they are willing to disclose their rates and fees for everyone to see.
Some websites like Zillow.com offer an anonymous quote service which may work for you if you are willing to sift through dozens of quotes. There are pros and cons to using this type of service, the main problem is that you may be overwhelmed by the vast amounts of quotes and information. If you are the details type of person and don’t mind sifting through many quotes this may work fine for you. Additionally, Zillow offers a rating system for the participating lenders which is a nice feature but like testimonials on most websites, you have to judge whether they are real or self served.
Once you narrow down your list of potential lenders request for some references of recent clients they have done business with. They should not hesitate to provide them to you. Call them and ask them specific questions. How was your experience with lender? Did you have any surprises during closing? Could anything have gone better in the process? These are fair questions to ask and will give you a sense as to how the lender / broker truly operates.
Your home loan if planned properly can be a great asset for you as time goes on. With the right mortgage planning you can save tens of thousands of dollars over the life of the loan. Take your time and do your homework before you sign any purchase contract. No deal is so great that you forgo to do your due diligence and end up with the real estate agent’s “preferred lender”. This would be a recipe for disaster.
A wise person once said: “The money is better off in your pocket than the lender’s”. In this deep recession that thought rings true now more than ever. Do your homework and keep the savings in your pocket.
