After climbing for much of 2018, mortgage rates have been falling since the beginning of the year. The average mortgage APR (annual percentage rate) was recently at 4.28 percent, according to Freddie Mac, compared to a high of 5 percent in 2018.
“Many homebuyers get intimidated by the mortgage process and just go with whatever is easiest-usually what their local bank is offering,” says Greg McBride, chief financial analyst for Bankrate. “Smart buyers shop around to uncover the lowest offers.”
When we shopped around, we found lower rates at various banks. HSBC Bank, for instance, is offering a 30-year fixed-rate mortgage, with an APR of 4.03 percent. Wells Fargo offers an APR of 3.98 percent.
Choose a Fixed or Adjustable Rate Loan
If you’re planning to stay in your home for at least a decade, a 30-year fixed rate loan-with relatively low monthly payments-is your best bet.
If you can afford higher payments and want to dispense with the debt sooner, consider a 15-year fixed. It features a lower interest rate and could save you thousands over the life of the loan.
Another option is to choose a shorter-term adjustable rate mortgage (ARM). These mortgages feature lower rates for an introductory period, then a higher rate. On a 7/1 ARM, for example, the rate remains fixed for seven years. After that period, it can adjust annually based on market rates but can only increase a maximum of 5 percentage points above the original rate.
If you’re planning to be in your home for years to come, this may not be the best option, especially since fixed rates are attractive now. “You don’t want to be in a position where your adjustable rate mortgage begins to adjust and you’re susceptible to a large payment increase,” McBride says.
Shop for a Loan
Shop for a mortgage at a variety of lenders, including banks, mortgage brokers, online originators like Quicken Loans, and aggregators like Lending Tree. Go to their websites and fill out preliminary forms to get interest rate estimates immediately or calls from company representatives who can quickly get quotes for you. You can also go to Bankrate to compare mortgage rates and find the best deals.
Another option is to find a phone number on the lender’s website and call directly. We found that you can get pretty accurate estimates over the phone. If you want a quote that could lead to a firm offer, you’ll need to give the lender your Social Security number.
Before you start looking at lenders, decide what kind of home you’re interested in and the type of mortgage you want. You’ll also need to tell the lender where you are in the process. Are you just starting to shop for a home, or do you have an accepted offer or a signed contract?
Once you start filling out loan applications, you’ll be expected to verify many aspects of your financial and personal life. Ensure that this part of the process proceeds seamlessly by having all of your essential paperwork in hand. Refer to Zillow’s checklist of what’s usually required.
Look at Smaller Players
In addition to considering a mortgage from the big banks and online lenders, research smaller, lower-profile players such as credit unions and community banks.
Search online with the name of your home state and terms like “community bank mortgage,” “sl mortgage,” and “credit union mortgage.” We found lots of options this way.
Keith Gumbinger, vice president of HSH, a mortgage information website based in Riverdale, N.J., says these smaller lenders typically have better rates for ARMs and offer better terms and rates to people with variable income streams, like the self-employed.
Consider a Mortgage Broker
A mortgage broker can shop among many lenders and get better rates than you might on your own. But be aware that brokers get paid by the banks, not you, so check them out carefully.
“If you go the mortgage broker route, get recommendations from friends or colleagues who have had a good experience with a particular mortgage broker in the past,” says McBride.
Mortgage brokers can save you money. For example, when we compared the best rate we could find on the Quicken Loans website with the best rate from a broker who worked with United Wholesale Mortgage, the broker got us a rate that was half a percent less. And while the rate we found came with points, the deal the broker offered us required zero points.
Understand the CFPB Loan Estimate
Once you’ve seen some attractive rates from a few lenders, ask each for a Loan Estimate. This is a standard document designed by the CFPB to help you compare mortgages. You can even use it to compare different types of loans, say, a 30-year fixed loan and 10-year ARM.
To get a Loan Estimate, you’ll need to provide documentation of your income and assets, among other items. And you’ll need to supply your Social cash payday loan Wisconsin Security number so the lender can research your credit history.
Get Loan Estimates from as many lenders as you can. Multiple inquiries on your credit records will not lower your credit score as long as they all come within a 45-day period and are for the same product-a home mortgage, for instance. They’re all considered one inquiry under these circumstances, the CFPB says, letting you shop around without damaging your credit.
Steve Baughman, a housing specialist at Fair Housing Contact Service, a not-for-profit in Akron, Ohio, that provides HUD housing counseling, suggests you get all the Loan Estimates on the same day, so you can make accurate comparisons. The Loan Estimate offers three key figures you can compare among lenders: the annual percentage rate, the interest rate and principal accrued after the first five years of the loan, and the “total interest percentage,” that is, the total amount of interest you’ll pay over the loan term as a percentage of your loan amount.