You’ve made the decision to buy a first home or trade-up to larger digs for the growing family. Or, as in my case, I’m in the hunt for a home after moving from Oklahoma to North Carolina. At any rate, I can tell you that the focus on shopping for a mortgage is every bit as important as finding the right house to buy.
In 2016-2107 home construction is projected to rise with housing prices going up. Mortgage rates will also rise as a byproduct of the Federal Reserve tightening credit.
New home starts rising, mortgage rates increasing, a strengthening economy and the Federal Reserve tightening credit are all good reasons you should follow this approach for capturing a good mortgage.
You’ll probably find more loans available than homes, so be as active in this search as in you are in viewing homes. Finding your best mortgage is a challenge because fees and rates can change daily, so be inspired and meet this challenge.
Check your credit and get it in order. Lenders will pour through your credit with a fine toothed comb to determine your ability to service debt. Knowing your credit profile will give you time to improve your credit or fix any errors before approaching lenders. Your credit rating will directly affect mortgage rates, so do not neglect this step.
Hold off opening new lines of credit or closing old lines. Applying for a new credit card or canceling one you no longer use will lower your credit score. This will be a temporary dip, but any hard inquiry on your credit will cause a drop in score.
A variety of lenders, including credit unions, consumer banks, mortgage companies and commercial banks, can underwrite a home loans. Start with your personal bank first but consider all lenders in play.
Meet in person with your banker, mortgage lender or broker. Speaking face to face gives the chance to ask questions and get immediate answers. Developing a personal relationship with a lender will energize the search process and get you a pre-approval. The pre-approval allows you to make a serious offer on a home when you find the right one.
Banks may have fewer options since they are dealing with their own products, but they can be more flexible and may negotiate if you have large assets. Understanding the mortgage process provides an edge to finding the best deal, and your banking relationship can help out here.
Mortgage brokers have more options because they shop among many lenders. If a loan can be made, a broker can find a lender to do it. Brokers don’t lend money directly. They gather paperwork from the borrower, passes it to a mortgage lender for approval, and collect a loan origination fee as compensation.
Don’t hide any known negatives from a potential lender. Being honest up front is the best chance of getting a good deal. If a lender will not consider you for some reason, it’s best to know this right away and move to another funding source.
Stay in contact with your lender of choice. If anything changes in your home search, let your contact person know immediately via short email or text.
Compare apples to apples. As loan options surface, don’t make the mistake of just comparing the mortgage rate. Compare all fees: points, origination fees, and any cost charged by the lender. Often, a “no-fee” loan will be offered but the fees are actually included in the rates.
Always get a Good Faith Estimate worksheet. The GFE summarizes all estimated costs for the mortgage loan and helps you:
- Compare offers
- Understand all loan cost & fees
- Make a good decision when choosing a loan
Your take away is to diligently shop for a good mortgage before looking for a home. Find a good banker or mortgage broker, but also remain proactive and stay on top of the process. Mortgage rates are still quite low and lending options are abundant. Take the challenge, be thorough, and find your best new home loan.