Whether you’re just thinking about buying a house, or in the middle of actively looking for one, there’s a good chance you’re keeping an eye out for articles like this one from REALTOR Magazine, telling you when mortgage rates go down (even if it’s for a brief moment).
While you’d probably prefer headlines that proclaim rates are going back down to the 3% range, even a drop below 7% might seem enticing.
The reality is, rates will go up and down throughout the time you’re looking for a house, and it only really matters what the rate is when you’ve found a house, gotten it under contract, and are ready to lock in a rate. So, watching the rates like a hawk isn’t going to do all that much for you, unless you can somehow manage to find a house to buy and negotiate a firm deal before the rates change yet again.
Not that anyone can blame you for wanting to get the best rate possible! Unfortunately, you don’t have much control over what the rates are at the moment they matter in the process of buying a home.
But there’s something pretty simple that you can do to get the best rate possible, yet many buyers aren’t doing it, and it’s costing them a lot of money: shopping around for the best rate.
Shopping Around for the Best Rate Is Worth the Time and Effort
According to another recent REALTOR Magazine article, simply calling more than one mortgage lender and shopping around for the best mortgage rate could save buyers hundreds of dollars a month.
They cite a recent survey done by Lending Tree, which revealed that more than half (54%) of recent buyers who needed a mortgage to purchase a home said that they only got a quote from one lender. Of those who obtained more than one quote, only 22% compared two, 14% got numbers from three lenders, and a mere 2% received quotes from four of them.
A separate study done by Freddie Mac found that buyers who received quotes from more than one lender typically saved between $600 and $1,200 per year on their mortgage payments. In addition, another Lending Tree analysis estimated that buyers could save $84,000 over the course of their loan, or possibly $234 on their monthly payments, if they shopped around a bit.
Obviously those exact savings can’t apply to everyone, because the amount saved depends on many different factors, like the amount of money being borrowed, the borrower’s credit rating, and the current market rates. But the point is, you’ll probably spend more per month on your mortgage if you don’t at least check to see what other lenders would be willing to offer you. Even if the quotes you get won’t save you hundreds of dollars per month, no matter how much you save will add up to a decent chunk of change at the end of the year, and even more so over the entire life of the loan.
It sounds so simple right? If you want the best rate possible on your home loan, all you have to do is call several lenders!
So why don’t more home buyers do it?
Why Don’t More Home Buyers Shop Around?
Getting pre-approved is probably the most important first step any buyer should take in the house hunting process. However, even though it usually doesn’t take much time or effort, it can be difficult for a real estate agent to get buyers to even contact a single mortgage company to get pre-approved before they start looking for a house. But not only is it important to get pre-approved early on in the process, it’s also the perfect time to contact several lenders.
The reason why most people likely don’t call more than one lender is because they wait until it’s crunch time. Once they’re under contract to buy a house, the clock is ticking and it leaves buyers with a lot of things to get done on a deadline beyond applying for a mortgage. But the mortgage process alone is so time-sensitive, it probably causes many buyers to just work with the one lender they got their pre-approval through and are familiar with.
So if you want to make sure you’re getting the best rate possible, make sure to start contacting lenders before you’ve found the house you want to buy. In addition, here are some tips for making the most of your efforts:
- Get a list of trusted lenders. Ask your real estate agent for a list of several lenders they have worked with and trust. Agents get first-hand experience working with so many lenders in their career, they usually know who lives up to their word and who does not. But also ask friends and family for the names of lenders they have worked with, since your agent may not have experience with an amazing one that someone you know has done business with.
- Figure out if you trust them before you’re under contract to buy a house. In order to get the best rate possible, the lender has to live up to their promises. If you don’t have faith in the person or company actually honoring their quote, or getting the job done in a timely fashion, that low rate they quoted won’t do you any good if they leave you scurrying to have another lender get the job done at the last minute. A good sign to look for is if the representative you’re dealing with is kind, patient, and willing to answer your questions and offer good recommendations for your personal situation.
- Focus on more than just the rate. Getting the lowest rate is important, but just focusing on the rate that the lender offers can be misleading. Ask them to break down all of the costs so that you can compare each lender’s quote. Ask if they have any suggestions on different types of loans you could take that will reduce your costs, or if there are any things you can do to improve your credit score, or financials in order to get a better rate. You may even be able to get them to waive fees they typically charge, especially if they know you’re doing your research and comparing lenders.
Doing those things ahead of time will put you in a position to contact each of the ones that you decide to trust once you’re actually ready to move forward, and ask them to give you their absolute best rate at that moment. An amazing mortgage rep will not only give you their best rate, but will also advise you whether to lock it in and protect the rate, or give you options to lock it in with an option to take a lower rate if they go down between that moment and your closing date.
The Takeaway:
If you’re in the market for a new home, you’re probably keeping an eye on the mortgage rates, hoping they’ll take a significant dip. While keeping an eye on rates is smart, there’s not much you can do to control rates, and they’ll likely change several times before you’re actually ready to lock one in.
Research shows that simply contacting multiple lenders gets buyers the best current rate possible, and can save you hundreds of dollars each month or even thousands over the life of your loan, yet many buyers don’t, and it ends up costing them.
So, start contacting lenders early on in the process of searching for a home to buy. Ask your real estate agent and friends for recommendations, and compare not only rates but all costs and fees. This prep work will put you in a better position to secure a great rate when you find your dream home. Simple steps like these can lead to big savings, so don’t skip them!