Whether you’re thinking about buying a home or are actually in the middle of your search, you’re likely keeping an eye on articles like this one from REALTOR Magazine that let you know when mortgage rates will drop (even if only temporarily).
While a headline declaring interest rates back to the 3% range might be preferable, even a drop below 7% might look attractive.
The reality is that interest rates will go up and down throughout your home search. They only really matter once you've found a home, you're ready to close the deal, and you're ready to lock in your rate. So closely monitoring interest rates isn't going to help you much unless you manage to find a home to buy and negotiate a solid deal before interest rates change again.
No one can blame you for wanting to get the best interest rate possible, and unfortunately, you don't have much control over interest rates at the point in the homebuying process when they matter.
But there's a very simple thing you can do to get the best rate possible, but many buyers don't do it and end up spending a lot of money: shop around for the best rate.
Shopping around for the best rate is worth the time and effort.
According to another recent REALTOR Magazine article, buyers could potentially save hundreds of dollars each month by simply calling multiple mortgage lenders and shopping around for the best mortgage rate.
They cite a recent survey by Lending Tree, which found that more than half (54%) of recent buyers who needed a mortgage to buy a home said they got quotes from only one lender. Of those who got multiple quotes, only 22% compared two lenders, 14% got quotes from three lenders, and just 2% got quotes from four lenders.
Another study by Freddie Mac found that buyers who get quotes from multiple lenders typically save $600 to $1,200 a year on their mortgage payments. And another analysis by Lending Tree estimated that with a little comparison shopping, buyers could potentially save $84,000 over the life of their loan, or $234 in monthly payments.
Of course, these savings won't be for everyone, as savings will vary based on a variety of factors, including the loan amount, the borrower's credit rating, and current market interest rates. But the point is, if you don't at least check how much other lenders are willing to offer you, you're likely going to end up paying more for your mortgage each month. Even if the quotes you get don't save you hundreds of dollars a month, whatever savings you get will add up to a significant amount at the end of the year, and even more so over the life of the loan.
Sounds simple enough? If you want the best possible interest rate on your mortgage, all you have to do is call around to multiple lenders.
So why don't more homebuyers do so?
Why don’t more home buyers comparison shop?
Getting pre-approved is probably the first and most important step a buyer should take in the home-hunting process. But even though it usually doesn't take much time or effort, it can be difficult for a real estate agent to even contact one mortgage company to get pre-approved before a buyer begins their home search. But not only is it important to get pre-approved early in the process, it's also the best time to contact multiple lenders.
The reason most people don't call multiple lenders is because they wait until the right time. Once a home purchase contract is signed, the clock is ticking and buyers have a lot to do besides applying for a mortgage before they can meet a deadline. But the mortgage process alone is so time-sensitive that many buyers will likely only deal with one lender they're pre-approved and familiar with.
So if you want to be sure you get the best interest rate possible, make sure you start contacting lenders before you even find the home you want to buy. Plus, here are some tips to help you get the most out of your efforts.
Get a list of trusted lenders. Ask your real estate agent for a list of lenders they have worked with and trusted. Because agents have worked directly with so many lenders in their careers, they usually know who keeps their promises and who doesn't. However, your agent may not have the experience you have with a great lender that someone you know has dealt with, so ask your friends and family for the names of lenders they've worked with. Before you sign a contract to buy a home, determine if you can trust them. To get the best possible interest rate, lenders have to keep their promises. If you can't trust that person or company to actually keep their estimate or get the job done on time, the low interest rate they offered won't help you in a situation where you have to scramble at the last minute to get another lender to do the work. It's a good sign if the person you're dealing with is friendly, patient, answers your questions, and makes suggestions that are right for your personal situation. Don't just focus on the interest rate, look at other things too. Getting the lowest interest rate is important, but focusing only on the interest rate the lender offers can be misleading. Ask for a breakdown of all costs so you can compare quotes from each lender. Ask if they have suggestions for different types of loans that could reduce your costs or if there's anything you can do to improve your credit score or financial situation to get a better interest rate. You might even be able to get a waiver of some fees that are normally charged, especially if the lender knows you've done your research and compared lenders.
If you do these things up front, then once you're ready to go ahead and actually proceed, you can contact each lender that you've decided to trust and ask them to give you the absolute best interest rate available at the time. A good mortgage loan officer will not only give you the best rate, but they'll also advise you on whether they'll lock in your rate to protect you, or give you the option to lock it in and take advantage of a lower rate if interest rates fall between then and the settlement date.
summary:
If you're in the market for a new home, you're probably keeping an eye on interest rates in the hopes that mortgage rates will drop significantly. While it's wise to keep an eye on interest rates, you don't have much control over them, and they may change multiple times before you're actually ready to take out a mortgage.
Research shows that simply contacting multiple lenders can help buyers get the best possible current interest rate and potentially save hundreds or even thousands of dollars each month over the life of the loan, but many buyers don't do this, which ends up costing them money in the end.
So start contacting lenders early in the process of looking for a home to buy. Ask real estate agents and friends for recommendations, and compare all costs and fees, not just interest rates. This prep work will make it easier to secure a great interest rate when you find your dream home. Simple steps like these can add up to big savings, so don't skip them.