Before you apply for a mortgage it is a good idea to compare interest rates. Shopping for mortgage interest rates is not your typical shopping expedition, but some research can save you in the long run. Even the slightest shift in your loan’s interest rate impacts your monthly mortgage payment and the amount of interest you pay over the life of your loan. The lower your interest rate is, the lower your monthly mortgage payment will be and vice versa. Here are four tips and tricks that will help you while shopping for the best mortgage interest rate.
Tip 1: Make your comparisons on the same day
It is best to contact mortgage lenders on the same day since mortgage rates change rapidly. Consider shopping between at least three different lenders for your mortgage. As an example, you can contact your local bank, your mortgage banker, and a large national bank. While each of these different lenders will have their own mortgage products, usually a mortgage bank will offer the largest amount of choices. Contacting each mortgage lender on the same day will provide an accurate comparison of each interest rate.
Tip 2: Ask each lender’s debt to income ratio requirements
The debt-to-income ratio is how much you pay towards debt each month compared to how much you earn each month. This ratio helps lenders understand your ability to repay the loan. It would be worth your while to see how debt-to income ratio can affect your interest rate. So if you find that some lenders have similar loan products but with different interest rates, ask your mortgage banker about debt-to-income ratio requirements for each interest rate. Depending on the requirements, you might qualify for a more competitive interest rate.
Tip 3: Discover each lender’s rate lock period to help you choose when to lock
A rate lock period is the timeframe from which a lender can lock-in your interest rate. This is also known as a rate commitment. As mentioned before, rates change daily. You may want to wait a little while before choosing to lock. In the meantime, you can gather your documents for the application while your lender keeps you updated on any rate changes in the market. Once you are satisfied with the current rate, find how long the rate can be locked – especially if you anticipate needing longer to complete your loan (for example, if you needed to dispute something appearing on your credit report, or to get trust-related documentation from your attorney). Each loan is different, so ask your mortgage banker about your options.
Bonus: Review this article, from the Federal Reserve Board, for more details on rate-locks https://www.federalreserve.gov/pubs/lockins/.
Tip 4: Understand the impact of your credit score
Prior to shopping for mortgage rates, know your score for yourself as well as any co-applicant. Remember, lenders will consider all borrowers’ credit scores from all three credit agencies during the application process, so if one of the borrowers has a lower credit score this will influence the interest rate you qualify for. Lenders will use the middle of the three reported scores. For example, if your scores are Equifax 702, Transunion 691, Experian 721, then the lender will use the 702 score to qualify you. So, knowing your most recent credit scores will give you leverage when shopping for mortgage products. Once you’ve started the mortgage application process, your credit report and credit score are pulled.
With these four tips you can shop for mortgage interest rates like a pro and find the loan with the terms that work for you. To discuss today’s mortgage interest rates and to find the right product for you, contact one of our mortgage bankers at 415.813.4001 anytime.