I get asked for advice regarding real estate transactions all the time. One thing pops up over and over again: ‘Do I just call my mortgage guy to refinance my loan?’ Another variation is ‘I’m buying a new house, so I have to call my current lender to get a loan for the new place, right?’ The worst is ‘I just refinanced my loan. I called my current lender and we just finished signing the papers.’
Your current lender may very well have the best rates for your new loan — I’ve used the same guy for the last seven deals I’ve done. But I always call other lenders to get quotes on their rates and closing costs before I go with the best price — who always happens to be the same guy. But before I found him, I never used the same lender twice.
The process for getting rate quotes is the same whether you are refinancing your current mortgage or getting a new one. The first step is to call multiple lenders and get quotes on their rates and closing costs.
Start off with your current lender. See what they can offer you. But don’t, under any circumstances, feel obligated to stay with them if their rates are high.
Talk to National Mortgage Brokers as well. They take your application and fund your loan, but then quickly sell to another institution. They will be the least flexible regarding terms and rules — they have to follow Fannie Mae guidelines in order to sell the loan.
Another often-overlooked source of mortgage lending is your local credit union. They will likely be the most flexible in their lending terms — they may be looking to keep the loan in-house as part of their portfolio and therefore don’t have to follow Fannie Mae guidelines.
Call as many lenders as you can for a quote, then write down their interest rate, closing costs and anticipated close date.
Compare apples to apples
Closing costs are where you will most likely find significant savings. Rates will be close among lenders — you probably won’t see a swing larger than a half point among the lenders you call. But you will see significant differences in closing costs.
My last mortgage was for approximately $140,000. Closing costs ranged from $2,000 to $5,000. All the lenders charged for the exact same services, they just used different providers. I’d much rather have that $3,000 in my pocket than in theirs.
Lock it in
Getting a rate quote is just that, a quote. It isn’t your rate until you lock it in. Herein lies a dilemma. You can lock in a rate for 30, 45, 60 or 90 days, but the longer your rate lock, the more it will cost you. Not in direct fees, but in increased rates, or even points. (A point is 1% of the total loan, so one point on a $100,000 loan would be $1,000.)
47% of homebuyers DON’T price shop?!?
You compare prices when you shop for a car, get new tires — or even just for a gallon of milk. Why wouldn’t you also compare prices for the biggest purchase you’ll ever make?
A recent report from the Consumer Financial Protection Bureau shows 47% of homebuyers didn’t shop around for their mortgage. Speaking to just three different lenders can save you thousands of dollars in mortgage costs. Why wouldn’t you shop around?
Credit score ding — Compress your search
When you apply for a loan — or even get a rate quote — your credit takes a hit. But not as big a hit as you think — especially if you’re getting these quotes all within a tight timeframe.
Depending on the method used to calculate your score — and no one is going to tell you what that method is — you have either 15 days or 45 days to get all your quotes in so the inquiry only counts as one hard inquiry on your report. Lenders consider this to be rate shopping.
So whether you get one quote or 50, if you get them all at once, it affects your credit the exact same.
Save money the next time you need a mortgage. Get comfy in your favorite chair, curl up with the phone and start dialing banks. And mortgage brokers. And your local credit union!