One of the most important factors to consider when you buy a house is financing. Before even opening the Sunday paper to see a list of open houses in your town, you should consult a mortgage broker to see what you can afford. You may be surprised at how much you can afford, or on the other hand, at how little you can afford. Interest rates, points and mortgage packages vary from company to company. Here is how best to compare rates and lenders.
- Know your credit, income and debt profile. Before you shop around with lenders, it is a good idea to know what your credit score is and to have a firm grasp on your income and your debt. These, along with a few other factors, determine your ability to get a good rate on a loan. If you familiarize yourself with your credit score (you can get a free one at AnnualCreditReport), you will be more prepared when you talk to mortgage brokers. Each broker will run his or her own credit report for you, but advance knowledge is always helpful and will ensure you that there will be no surprises.
- Start with your bank. Start your mortgage lender search at a place where you already do business-your bank. Talk with a mortgage specialist for rates.
- Use the yellow pages. Shopping for mortgages boils down to a numbers game, for the most part. Even if your best friend is a mortgage broker, you won't necessarily go with his company if his quote is not the lowest. There is still an element of trust and level of comfort you need to have with your broker, however. You must have confidence that the loan will be approved by the bank and that the broker is being honest about his or her capability to perform.
- Google. The Internet has a firm grasp on the mortgage market. Google "compare lenders" and you will come up with several companies that compare rates and banks. LendingTree, Eloan and Bankrate are just a few. Exhaust these types of interest resources. Be prepared for a slew of emails from these companies when and if they receive your email.
- ARM or fixed? Push your mortgage broker to give you quotes for both fixed and adjustable rates. You may be surprised at the differences. Ask the same questions to each broker (even if you know the answer) to see how well the broker explains them to you. Get a feeling of what type of loan would suit you better by talking with a few brokers.
- Think outside the box: Non-conventional loans. Though most people use mortgage brokers that cut loans with banks, you may find you get a better rate through federal programs. If you qualify for the first time homebuyer's program, you can get special federal funding through the Federal Housing Administration (FHA). Similarly, if you qualify for a low-income program, you may get federally insured loans. Visit the FHA for information on federally insured loans.
- Veteran Affairs Loans. If you are a veteran or in the armed forces you can apply for a VA loan if you qualify (Check VA Loans for requirements). VA loans do not carry points, and thus, are a most attractive deal for buyers who qualify.
Remember that finding a good loan takes a lot of research-do not settle on the first broker you meet since they may not have the best rate. Remember too, that rates can fluctuate, so once you find an attractive rate, lock it in.