November 9th, 2018 8:00 AM by Jackie A. Graves, President
Good deals are still available, and we'll show you where to shop
The days of super-cheap mortgages may be over, but it’s still
possible to get a good deal if you know where to look.
The average mortgage APR (annual percentage rate) recently
topped 5 percent, the highest in a decade. And with the Federal Reserve
continuing to push up short-term rates, mortgage rates will only keep rising.
Still, mortgages remain relatively cheap by historic standards.
You just need to shop around to find the one that’s right for you.
“Sure, rates are going up, but no matter what the national
average might be at any given time, you’re always going to be able to find
lower rates,” says Greg McBride, chief financial analyst for Bankrate.com.
Consumers, though, don't
always look around for the best deal.
“Many homebuyers tend to
get intimidated by this process and just go with whatever is easiest—usually
what their local bank is offering," McBride says. "Smart buyers shop
around to uncover the lowest offers.”
For example, the average
rate for a 30-year fixed loan was recently 4.85 percent, according to mortgage
industry giant Freddie Mac. When we shopped around, we found a 15-year
adjustable-rate mortgage (ARM) still priced at the low end of the 4 percent
Before you start
shopping, however, figure out how much mortgage you can afford. Then follow
these steps to find the lowest-priced loan available.
Fixed vs. Adjustable Rate
If you’re planning to
stay in your home for at least a decade, a 30-year fixed rate loan—with
relatively low monthly payments—is your best bet.
But if you can afford
higher payments and want to dispense with the debt sooner, go for a 15-year
fixed. It features a lower interest rate and could save you thousands over the
life of the loan.
The average homeowner,
however, stays in a home for seven years or less. So you could save plenty by
choosing a shorter-term ARM. These mortgages feature lower rates for an
introductory period, then a higher rate.
For instance, the
interest rate on a 7/1 ARM remains fixed at a low rate for seven years. After
the intro period, the rate is adjusted annually based on market rates but with
a maximum of 5 percentage points above the original rate.
Because mortgage rates
are still low, consider an ARM only if you are absolutely sure you won’t be in
the home for more than a couple of years.
“You don't want to be in
a position where your mortgage is an ARM and you remain in the home when the
loan starts to adjust, because you could be susceptible a large payment
increase,” McBride says.
Shopping for a Loan
You can shop for a
mortgage at several places, including banks, mortgage brokers, online
originators like Quicken Loans, and aggregators like Lending Tree. Going to
their websites and filling out
preliminary forms should get you interest rate estimates immediately or
calls from company representatives who can quickly get quotes for you.
If you want more control
(and less email), find a phone number on the lender's website and call
directly. We found that you can get pretty accurate estimates over the phone.
If you want a quote that could lead to a firm offer, you'll need to give the
lender your Social Security number.
Before you start looking
at lenders, decide what kind of home you’re interested in and the type of
mortgage you want. You’ll also need to tell the lender where you are in the
process. Are you just starting to shop for a home, or do you have an accepted offer
or a signed contract?
Once you start filling
out loan applications, you'll be expected to verify many aspects of your
financial and personal life. Ensure that this part of the process proceeds
seamlessly by having all of your essential paperwork in hand. Refer to Zillow’s
checklist of what’s usually required.
Look at Smaller Players
In addition to looking at
the big banks like Chase and Wells Fargo or online lenders like Quicken Loans,
research smaller, lower-profile players such as credit unions and community
Search online with the
name of your home state and terms like “community bank mortgage,” “s&l
mortgage,” and “credit union mortgage.” We found lots of options this way.
Keith Gumbinger, vice
president of HSH Associates, a mortgage information website based in Riverdale,
N.J., says these smaller lenders typically have better rates for ARMs and offer
better terms and rates to people with variable income streams, like the
When we searched for
“credit union low mortgage rate,” we found the NASA Federal Credit Union, which
offered a 30-year fixed-rate mortgage at 4.25 percent. The loan requires a
hefty two points (interest paid up front), but even then the APR was well below
the national average.
At first glance, the NASA
FCU appeared to be only for employees and former employees of NASA. But when we
emailed a query about membership, we were told we didn’t need to be members of
the credit union to apply for a loan.
Consider a Mortgage Broker
The main advantage of
using a mortgage broker is that he or she can shop among many lenders and get
better rates than you might on your own. But be aware that brokers get paid by
the banks, not you, so check them out carefully.
“If you go the mortgage
broker route, get recommendations from friends or colleagues who have had a
good experience with a particular mortgage broker in the past,” says McBride.
Mortgage brokers can save
you money. For example, on the Quicken Loans website, we found a 30-year fixed
rate of 5.125 percent on a $200,000 mortgage for a California borrower with
excellent credit who put down 20 percent and paid 1.875 points up front, or
If we had gone through a
broker who worked with United Wholesale Mortgage, that same loan would have a
fixed rate of 4.625 percent with zero points. The only disadvantage is that
Quicken offered a 40-day rate lock while UWM's loan offered 30 days.
A great resource for
finding a mortgage broker is the aptly named website findamortgagebroker.com.
Take Advantage of Promotions
Banks sometimes hold
mortgage sales or promotions. Usually this means the bank lowers the fees it
charges, not the interest rate. But even this angle can lead to some savings.
Laurel Road, an online
lender, is offering a discount of $650 for applicants who do the entire
application online. On a loan of $260,000, that’s equal to a quarter of a
percentage point. Ask lenders what specials or discounts are available, and
what you have to do to qualify.
Understand the CFPB Loan Estimate
Once you’ve seen some
attractive rates from a few lenders, ask each for a Loan Estimate. This is a
standard document designed by the CFPB to help you compare mortgages. You can
even use it to compare different types of loans, say, a 30-year fixed loan and 10-year
To get a Loan Estimate,
you’ll need to provide documentation of your income and assets, among other
items. And you’ll need to supply your Social Security number so the lender can
research your credit history.
Get Loan Estimates from
as many lenders you can. Multiple inquiries on your credit records will not
lower your credit score as long as they all come within a 45-day period and are
for the same product—a home mortgage, for instance. They’re all considered one
inquiry under these circumstances, the CFPB says, letting you shop around
without damaging your credit.
Steve Baughman, a housing
specialist at Fair Housing Contact Service, a not-for-profit in Akron, Ohio,
that provides HUD housing counseling, suggests you get all the Loan Estimates
on the same day, so you can make apples-to-apples comparisons. Page 3 of the
Loan Estimate offers three key figures you can compare among lenders: the
annual percentage rate, the interest rate and principal accrued after the first
five years of the loan, and the “total interest percentage,” that is, the total
amount of interest you'll pay over the loan term as a percentage of your loan
Ron Haynie, senior vice
president of mortgage finance policy at the Independent Community Bankers of
America in Washington, D.C., recommends also focusing on page 1, which shows
the amount of cash needed at closing. “That’s what you’ll need bring to the
settlement,” he notes.
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