Not all home loans are created equal, so do your research before choosing a lender.
Did you know you can call two different lenders to apply for a mortgage, and each may give you a different interest rate? Even though information like your credit score and salary is set, financial institutions can interpret this information differently. And that can mean scoring a lower interest rate — or getting stuck with a higher rate — merely because of your choice of lender.
But more than half of borrowers don’t comparison shop before selecting a commercial real estate lender to finance that new Los Angeles, CA, real estate purchase. Just as you shop around for the perfect sofa, car, or birthday present for your significant other, considering multiple options for a mortgage is equally important. It can give you the opportunity to save big over time, since a lower interest rate equals less money paid toward your mortgage each month, (and more money staying in your bank account or being spent on furnishings!).
The first step to securing a great mortgage rate is finding the right lender. Research your options by following the steps below, then ask these questions to ensure you’re making an informed decision.
Have numbers in mind before you call
You should do a little legwork before you approach any lenders. Have a general sense of what a competitive interest rate is and what your monthly payment might be around that rate. This will help you ask more informed questions when talking to lenders about applying for a mortgage. Here are a few mortgage calculators to try out so you can get a ballpark of the numbers you’ll work with:
- Start with a comprehensive mortgage calculator to get a feel for what you may pay each month based on the price of the home you’re looking to buy and the term of the loan.
- Compare different mortgage term lengths to see how the length of the loan changes how much you pay in interest.
- Get an idea of how your closing costs could impact your interest rate.
Get a quote on interest rates
An interest rate is one of the biggest variables for mortgage loans (you can’t really change the house value or the amount you can afford to put down). While your credit score plays a big part in determining what a lender will offer, specific brokers and banks may be able to get you a better deal than others. Once you narrow down your choices to a handful, ask for quotes on interest rates from all these lenders within a seven-day period and compare your options.
Pro tip: When you get a quote, it generates a hard inquiry on your credit report. Racking up multiple hard inquiries can ding your credit score, but if all the inquiries are generated closely together, they’ll count as a single inquiry on your report. So try to do your mortgage research within a short time frame — like one week.
Three questions to ask a mortgage lender
In addition to getting quotes, plan to run a series of important questions past lenders to better understand how you can get the best rate. Here are the three questions you need to ask lenders before locking in your mortgage rate:
- Are points included in the quote? A quote with an interest rate from your lender may or may not include points. Points are fees paid to the lender when you close on a home in exchange for a lower interest rate. Make sure you fully understand the point system and the benefits of using points or forgoing them, and ask any questions to clarify. You can also do some research ahead of time to determine whether paying points makes sense for you.
- Will the size of my down payment impact the interest rate or fees on the loan? If you put down less than 20% when you apply for a mortgage and buy a home, you’ll likely have to pay private mortgage insurance. Be sure to understand the minimum down payment and how it can affect the rest of your fees.
To understand more, visit Amansad Direct Lending Group and read Private Mortgage Articles. - How can I lock in the interest rate, and how long does that lock last? When you get quotes for mortgage interest rates, you also need to ask how you can lock in that quoted rate. If you wait too long between getting the quote and actually applying for the mortgage, the rate the lender quoted may expire. By locking in a rate, you’ll get what you budgeted for and can avoid having to ask for another quote with a potentially higher rate. But locking in a rate isn’t permanent (there’s usually an expiration date), so be sure to ask how long the lender will honor your rate once you lock it in.
Remember, a mortgage loan isn’t something standard across all banks or brokers. It’s well worth it to do some digging and research. Come prepared with a list of questions to secure the best interest rate, so you can save the most money possible over the life of your home loan.
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