How to shop for the best interest rate
Home buyers often ask me, “How can I shop for the best interest rate on my mortgage?”
The first thing I tell people is that what you see in advertisements is not necessarily what you’re going to get. Lenders are required to display the assumptions associated with their advertised interest rates. The assumptions are typically a 740+ FICO, 20%-30% down payment or equity, and that the loan is for a primary home. If your profile varies from the lender’s assumptions – let’s say you’re buying a vacation home – then your interest rate will differ from the advertised rates.
Here are my five tips on interest rate shopping:
- Know your credit score. Visit www.AnnualCreditReport.com to get a free copy of your credit report. While the credit report itself is free, you will need to pay $6-8 to receive the Credit Score (FICO) from each of the 3 bureaus.
- Don’t allow every lender to pull your credit report. The credit scoring process only allows a 30-day window to rate shop before the inquiries begin to lower your credit score.
- Shop for interest rates based on your personal mortgage profile. Take into consideration your credit score, the type of mortgage you want, your anticipated down payment, the amount of points you are willing to pay, the type of property you want, and location.
- Shop interest rates on the same day and preferably the same time of day. Interest rates change daily, and in volatile markets they can change in the middle of the day, so you should compare lenders’ rates on the same day and at the same time of day.
- Compare lender fees. Points and fees vary from loan to loan and lender to lender, so make sure you know each lender’s fees associated with particular interest rates.
Shopping for the best interest rate can save you tens of thousands of dollars over the life of a mortgage loan. Knowing a few shopping tricks should help you get started.