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Originally Posted On: https://chlending.com/blog/f/3-tips-to-get-the-best-mortgage-rate
When it comes to buying a home, getting the best mortgage rate is crucial for saving thousands of dollars over the life of the loan. Conforming loans such as Conventional loans, FHA loans, VA loans, and USDA loans all follow certain guidelines to become a mortgage-backed security (MBS). This means they all end up in the MBS market. So, why do rates deviate from mortgage lender to mortgage lender? More importantly, how can you avoid paying more for a home loan when you can get the same mortgage loan at a lower rate? Here are three must-know tips for ensuring that you get the best mortgage rate possible.
1. Shop Multiple Home Loan Lenders
It goes without saying, if you want to get the best deal on anything, it is wise to shop around. However, data from Fannie Mae shows that one-third of consumers do not shop multiple mortgage lenders for the best rate. To put it into perspective, of the 5.72 million units funded by Fannie Mae alone, almost 1.9 million consumers did not shop multiple mortgage companies. With an average loan amount of $410,839, U.S. homeowners could be paying higher interest on $775.5 billion worth of home loans just because they did not check with a second lender.
How to find the Best Mortgage Lenders?
Start with a recommendation from your local real estate agent. Remember that your real estate agent has worked hard to find the perfect home for you and your family. Finalizing the home purchase process is a high priority for your agent. Your agent should refer you to at least one mortgage company that has a solid track record of closing home loans. The internet is a valuable resource. Be cautious of lead generation websites that want to capture your information and shotgun it out to multiple lenders who pay for home loan leads. Check mortgage lenders whose website clearly displays mortgage rates without needing to complete a loan application. Check a mortgage lender list such as Scotsman Guide for the nation’s leading mortgage companies.
2. Get Current Mortgage Rates
Although mortgage lenders can have different rates, every mortgage lender abides by movements in the MBS market. Therefore, if you get a rate quote from multiple lenders and begin to shortlist those lenders, be certain to get a current mortgage rate update. Today’s mortgage rate could be higher or lower than yesterday’s mortgage rate and can cause quotes received on different days to be incomparable. This is especially true if you are quoted an unlocked rate – known as a floating rate. Some lenders offer float downs to help you in the case of rates dropping after you lock. Talk to your loan officer about those options because float down requirements and availability can change with little notice. If you have completed a mortgage application, then your Loan Estimate (LE) will detail whether your home loan offer is locked or not.
How to Get Today’s Mortgage Rates
Mortgage rates today are displayed everywhere. You can start with checking our current mortgage rates without running a credit report. Here are a few things to know about sifting through online rate advertisements, online lead generation attempts, and understanding the fine print when you shop for mortgage rates online.
- First, it is rare that you will find a bait-and-switch rate advertised by a mortgage lender due to regulation on trigger terms requiring APR disclosure. However, that does not exclude mortgage lenders from quoting 15yr terms or adjustable-rate mortgages (ARM) to entice a borrower to submit a home loan application thinking the rate will be the same on a 30yr fixed rate as it is on a shorter term.
- Second, mortgage lead generation companies pay a ton of money to be at the top of search engine pages. Their goal is to capture your contact information to sell to actual mortgage lenders. They may advertise a low mortgage rate, but they will submit your information to many lenders who may not offer the low rate that caught your attention. The main reason those lenders may not offer those rates is due to the marketing costs of acquiring leads from those advertising companies. Or, you may have to pay points to get that low rate. You will find many retail lenders in this category.
- Third, when you do find a lender’s website that offers a clear picture of their rates, ensure that you read the fine print. In that fine print you might see disclaimers such as a minimum credit score higher than you have, a down payment larger than you accounted for, and/or discount points to make their rate look competitive against other lenders.
Do not get discouraged. Equipped with the knowledge you have obtained so far, you are in a great position to get a competitive mortgage rate.
3. Work with a Mortgage Broker
Not all mortgage companies are the same. Regardless of whether they are mortgage banks or correspondent lenders, there are three distinguishing features of mortgage companies. The types of mortgage companies that are offering conforming home loans such as Conventional, FHA, VA, or USDA are Retail Lenders, Correspondent Lenders, and Mortgage Brokers. Important Tip: 70% of the top 10 lenders listed on Scotsman Guide offer wholesale rates through local mortgage brokers.
What is a Retail Mortgage Lender?
A retail lender is a mortgage bank that underwrites and funds mortgage loans in their own name. However, these mortgage banks can offer third-party origination (TPO) access to their mortgage loan products. Retail mortgage lenders can have higher rates because their operating costs are higher than other types of lenders. Company staff such as underwriters, compliance department, closing and funding department, sales teams, and other administrative employees add to the costs homebuyers pay for a mortgage loan. Many retail mortgage lenders have the option to retain mortgage loan servicing.
Advantages and Disadvantages of a Retail Mortgage Lender
The advantage of using a retail lender is potential in-house incentives or updated loan products that are not available with other types of lenders. The disadvantage, this type of lender is usually the most expensive. Remember: 70% of these retail lenders offer wholesale access direct to consumer.
What is a Correspondent Lender?
A correspondent lender is similar to a retail mortgage lender in the sense that a correspondent lender funds home loans in their company name. However, a correspondent may or may not underwrite the home loan in-house. Whether they are delegated or non-delegated to underwrite a home loan, a correspondent lender closes a home loan under the underwriting guidelines of a mortgage bank and transfers servicing after closing the mortgage loan.
Advantages and Disadvantages of a Correspondent Mortgage Lender
The advantage of using a correspondent lender is the option to access several mortgage banks within one company. The disadvantage of using a correspondent lender is loan officer commission fees. Mortgage loan officers who work for correspondent lenders are usually commission based. That commission fee is worked into the cost of your loan in either a retail rate or origination fees. You can find origination fees on page two of your Loan Estimate (LE).
What is a Mortgage Broker?
A mortgage broker is also known as a third-party originator (TPO). Their main goal is to originate mortgage loans for mortgage banks. In exchange for finding the mortgage business, processing the home loan, and ensuring a smooth transition to the mortgage bank at closing, the mortgage bank allows the mortgage broker to offer a discounted mortgage rate to the homebuyer. The mortgage bank’s savings from not having to pay salaried staff to earn the new business is reflected in the wholesale mortgage rate the mortgage broker is able to offer the homebuyer. The mortgage broker, however, does not work for free. A mortgage broker is paid a predetermined amount by the mortgage bank at closing. Important: mortgage brokers cannot earn commission off of the rate you are offered. Therefore, you do not have to worry about haggling over rate. Although, you can take advantage of a lender credit to reduce your closing costs. Ask a mortgage broker about the mortgage banks they partner with and why they decided to work with each lender
Advantages and Disadvantages of a Mortgage Broker
The biggest advantage of using a mortgage broker is the overall lower cost of financing. You are also able to access the same mortgage loan programs mortgage banks offer but at a wholesale rate. The disadvantage of using a mortgage broker is organizational management.
Get the Best Home Loan
You are ready to shop for the best mortgage for your home loan! Regardless of the mortgage company you decide to work with, you must feel comfortable with the loan officer assigned to your home loan. You can verify a mortgage loan officer’s experience through the National Mortgage Licensing System (NMLS). Learn about each company’s loan process and gather as much information as you can so you can spot the difference between retail rates, average rates, and wholesale mortgage rates.
Competitive Home Lending – NMLS #1047944
Raul Hernandez is a Texas and Colorado state licensed mortgage loan officer with over 20yrs of mortgage experience, a B.S. in Management and Finance, and a M.S. in Management. He leads Competitive Home Lending in the mission to bring awareness to consumes about wholesale mortgage lending. MLO NMLS #216096.