Shopping for a mortgage can be overwhelming. But knowing how to shop for a mortgage is essential if you’re thinking about buying a home and need a loan. Follow these shopping tips before applying online or calling local lenders to ensure you choose a mortgage that’s a good fit for your finances.
Research Mortgage Programs
Most mortgage borrowers can choose from four standard loan programs: Conventional, FHA, VA, and USDA. To get the best rates and increase your chances of quick approval, apply for only the mortgage program that best fits your financial situation. Choosing the wrong loan program can cost you time and money and even result in a mortgage denial.
Be Aware of Your Credit Scores
When looking for a mortgage, credit scores are important for two reasons. First, they assist in determining which loan program is best for you. Conventional loans are a good fit if your credit score is higher than 620, whereas FHA loans are your only option if your score is between 500 and 619.
Second, your credit score influences your interest rate more than any other loan factor. And lenders don’t just look at one credit score. Most review scores from the three major credit bureaus (Equifax, Experian, and TransUnion) and use the middle score of those three for loan approval and interest rate quotes.
Compare Various Mortgage Lenders
Once you’ve matched your credit scores and determined which programs are best for your financial situation, it’s time to compare loan estimates from various lenders. According to studies, speaking with three to five lenders is enough to get the best offers.
Determine Which Mortgage Type Is Best for You
Before comparing mortgage rates, understand how each type of loan works. Requesting rate quotes on the same type of mortgage ensures that you compare each mortgage lender’s rates equally.
Compare Mortgage Rates
It’s time to start getting rate quotes now that you’ve determined the best type of mortgage for your credit scores and which program to apply for. There are several options for doing this:
– Try a comparison website
The main advantage of this approach is that you’ll enter the same information for all lenders about the mortgage you’re looking for and should receive loan estimates on the same date.
– Contact three to five different lenders
Keep a list handy so that you can provide the same information about your credit score, loan type, and program to each loan officer.
Examine Mortgage Interest Rates and Closing Costs
When comparing loan estimates, keep the total closing costs in mind. They are usually between 2% and 6% of the loan amount. The fees will differ depending on the loan program you apply for. Lenders typically require mortgage insurance if you put down less than 20%. In place of mortgage insurance, some loan programs charge a guarantee fee.
