First time buyer - help me understand how to “shop” for the best mortgage rate

[Anonymous]

I’ve learned a lot from these boards and are hoping folks can help me with this. We are buying our first home and have a short list of lenders from our realtor and friend’s referrals. We are leaning towards using a local lender (rather than a big national one) given how competitive the market is, the fact that we will need someone who can move really fast and do some hand holding, and the likelihood that we will need to waive all contingencies (gulp) so need to ensure an appraiser understands this area and will appraise appropriately.

I have spoken with one local lender so far who verbally told me what kind of loan we would get, the amount, and a ballpark percentage rate. The next step for us is to complete the preapproval. I know we only need one of these and don’t want to get multiple pre approvals because of the hits to credit. Here’s where I’m a stuck - so now how do I “shop” rates and fees with other lenders? Lender one didn’t give us a specific percentage and said it would not lock until closing, which could be months away. They also haven’t provided a breakdown of their fees. It’s not clear to me if I should ask for this now, get this info after doing the preapproval, or if this doesn’t come up until we get a house under contract.

I understand that interest rates change daily, so how exactly do you shop around for your rate with a local lender (not a national one who has published rates)? When will a local lender give me an exact rate, or does that not happen until closing day? Do I just proceed with lender one and then once I get a house under contract should I make a few quick calls around to other lenders to see what terms they can offer? Does shopping around require all these folks to run credit checks?

Sorry if these are obvious questions, I am just finding it confusing to know how to approach this and when.

[Anonymous]

Anonymous wrote:I’ve learned a lot from these boards and are hoping folks can help me with this. We are buying our first home and have a short list of lenders from our realtor and friend’s referrals. We are leaning towards using a local lender (rather than a big national one) given how competitive the market is, the fact that we will need someone who can move really fast and do some hand holding, and the likelihood that we will need to waive all contingencies (gulp) so need to ensure an appraiser understands this area and will appraise appropriately.

I have spoken with one local lender so far who verbally told me what kind of loan we would get, the amount, and a ballpark percentage rate. The next step for us is to complete the preapproval. I know we only need one of these and don’t want to get multiple pre approvals because of the hits to credit. Here’s where I’m a stuck - so now how do I “shop” rates and fees with other lenders? Lender one didn’t give us a specific percentage and said it would not lock until closing, which could be months away. They also haven’t provided a breakdown of their fees. It’s not clear to me if I should ask for this now, get this info after doing the preapproval, or if this doesn’t come up until we get a house under contract.

I understand that interest rates change daily, so how exactly do you shop around for your rate with a local lender (not a national one who has published rates)? When will a local lender give me an exact rate, or does that not happen until closing day? Do I just proceed with lender one and then once I get a house under contract should I make a few quick calls around to other lenders to see what terms they can offer? Does shopping around require all these folks to run credit checks?

Sorry if these are obvious questions, I am just finding it confusing to know how to approach this and when.

You don't shop around until you're about to close on your house. Then you'll call 1-2 other lenders, answer a few questions, and ask them to email you a quote. You can use the quotes to negotiate with your current lender. Getting quotes doesn't require a credit check.

[Anonymous]

Ok, thank you. Should I ask for a quote now from the current lender I’m in conversation with, or is that premature?

[Anonymous]

You get the pre approval to shop for houses. Once you have an accepted offer, you will start shopping for mortgages.

Call several local banks and maybe some national ones. You can get referrals from your realtor, too. You'll call and give them general stats on the purchase price, %down, salary, credit score. Then the lender will give you an estimate of the rate, fees, monthly payment, etc.

You should not wait to lock until closing. Usually a lock can happen once an application for the mortgage occurs (when you've decided which lender to go with).

[Anonymous]

Not OP. How much wiggle room is there for banks to compete to get your business. Aren't rates pretty much set by logarithms and bean counters?

[Anonymous]

And yes, you can use all the offers you receive to negotiate with other lenders. When we did this 2 years ago, the local lender wasn't able to match what a national bank was offering, but he did try hard to make it happen.

[Anonymous]

In addition to the rate, factors that can be adjusted by lenders are points, application and lender fees. And then you can shop around for closing/title companies and a few other things separate from the lender you choose.

[Anonymous]

What everyone else said - the lender we went with in the end gave us a drastically lower rate than the one that we were preapproved with/

Then when our offer was accepted we shopped around and the preapproval lender was not willing to go any lower and even said if they are giving you that low of a rate go with them.

[Anonymous]

Anonymous wrote:Not OP. How much wiggle room is there for banks to compete to get your business. Aren't rates pretty much set by logarithms and bean counters?

There's enough variation between shops to make calling at least 3 worthwhile. They may have slightly different rates depending on your credit score and your specific financial circumstance. Brokers often have lots of different partnerships that change frequently. On our last refi, the broker said he had room in that week's program for 5 loans with our LTV (60%) to get in at a discounted rate for a local bank, and appraisal was waived. I called another lender who said he couldn't beat it.

[Anonymous]

Multiple pre approvals in a short amount of time will not hurt your credit. As long as your last request is 45 days or less after the first, all of your inquiries will only be counted once to avoid denting your credit score.

[Anonymous]

Do people not use mortgage brokers in this area? I’m moving from another state, where I used a broker for previous loans. They pull multiple lender offers and I never had to call any lenders.

[Anonymous]

I’ve found it difficult to compare fees because the categories/names do not seem to be consistent. Two mortgage brokers I’ve received quotes have a fee listed that appears to be a kick back to our real estate agent.

[Anonymous]

Shop several local credit unions and banks within a few weeks. It will only counts as one inquiry on your credit report if you do it that way. And rates and fees can vary greatly. You can email several lenders with basic stats (mortgage amount, downpayment, approximate credit score) and ask if they are running any deals or discounts by using them. I saved 3k on closing costs and 0.25 in interest rate by emailing half a dozen lenders. Good luck and congratulations on your first home!

[Anonymous]

Also a mortgage broker can be a good option. I've shopped both with a broker and credit unions. First time the broker got a better rate and the second time the credit union scored me a better deal. Make sure you ask if there's any programs available for first time home buyers. I got nice discount on MIP by taking an hour class on personal finance at the recommendation of my broker.

[Anonymous]

We never shopped for lenders. We found a broker we were comfortable with who gave us a rate we were happy with. Maybe we could have saved some money if we had shopped around. Who knows. But we now have a good relationship with our lender. She is helping us be competitive for a second home purchase we are trying to make as well.