How to shop for a mortgage: Tips to compare quotes and rates

Shopping around can save you thousands

To shop for a mortgage, you have to apply and get pre-approved with 2-3 lenders. You can expect that process to take at least a few hours.

But those few hours of work are proven to be worth it. 

The Consumer Financial Protection Bureau (CFPB) says borrowers could save $300 per year on average by comparing rates from just three lenders. And negotiating your rate can get it down even lower.

All told, you could save thousands by comparing rates — even tens of thousands, if you keep your mortgage a long time. Ready to get started?  

How to shop for a mortgage: Key takeaways from Stanford Mortgage

Shopping for a mortgage is almost guaranteed to save you money because all lenders offer different rates to different borrowers. And if you know what you’re doing, it doesn’t have to be difficult or time-consuming.

Here are the 7 step Stanford Mortgage does to help you:

  1. You have to get pre-approved to know your ‘real’ rate
  2. You’ll fill out an application and provide supporting documents
  3. Consult with one of our licensed Mortgage Advisors to discuss the process and understand your best options
  4. Based on your Income and asset documentation an Underwriting Pre-approval is issued
  5. Once you find the right house, prepare an offer with your Real Estate Agent and Mortgage Advisor
  6. The home is inspected and appraised to support the value your documentation is verified
  7. Upon final approval, the title company schedules your signing to close and your keys are delivered

How to compare mortgage rates

At face value, comparing mortgage rates is easy.

You can apply for pre-approval with 3 or more lenders and simply compare the rates you’re offered. But remember — your interest rate isn’t the only thing that matters. You also need to look at factors like closing costs, origination fees, annual percentage rate (APR), and discount points.  

Luckily, it’s easy to compare mortgage quotes and find the best deal.

All mortgage offers come in the same format, called a ‘Loan Estimate’, so you can quickly skim for rates, fees, and other important information to find the best offer.

How to read your Loan Estimates

You will find your loan terms, quoted interest rate, and monthly payment on the first page of your Loan Estimate.

Along with comparing interest rates, you can use this page to:

  • Make sure all your loan offers are for the same loan type (conventional loan, FHA loan, VA loan, etc.)
  • Make sure they’re all quoting the same type of rate (fixed-rate mortgage or adjustable-rate mortgage)
  • Compare monthly mortgage payments to see which loan is cheaper month to month

What’s a good mortgage rate?

Mortgage rates are incredibly low right now — around 3% on average. If you can secure a fixed mortgage near or below 3%, that’s a great rate by historical standards.

For perspective, the long-time average for 40-year fixed mortgage rates is about 8%.

But keep in mind that not everyone gets the same rates.

The best mortgage rates are reserved for “top-tier” borrowers. Those are people with:

  • Stellar credit scores (740 or higher)
  • Spotless credit reports
  • Low debt-to-income ratio (DTI)
  • Plenty of assets and savings
  • A big down payment (20% or more)

Of course, few borrowers are ‘perfect.’ Most of us fall somewhere on the spectrum between excellent and so/so personal finances.

Where you are on that spectrum will determine the mortgage rates you qualify for. But knowing how to shop for a mortgage will help you make sure your deal is at the better end of that range.

How to shop for a mortgage: FAQ

How many mortgage quotes should I get?

Aim to get at least 3 mortgage quotes. This will give you a good idea of the range of mortgage rates you qualify for. Ideally, get 5 or more quotes in order to find the very best rate and maximize your savings.  

What do you need to know when you shop for a mortgage?

The biggest thing you should know is that lenders cannot tell you your mortgage rate until you’ve been pre-approved for a mortgage loan. So in order to shop for a mortgage, you need to actually apply — and provide documents — with more than one lender. This takes some time, but it’s the only ‘real’ way to find your best deal. Looking at advertised rates online won’t help you.

What’s the difference between pre-qualified and pre-approved?

Getting pre-qualified can be a helpful first step in the home buying process. Pre-qualification involves answering a few questions about your financial situation, after which a loan officer will tell you whether you might be mortgage-qualified and what your maximum loan amount is likely to be. Mortgage pre-approval, on the other hand, is a more rigorous process that involves supplying financial documents and going through a credit check and underwriting. After this, you’ll have a verified approval and know your final loan amount and interest rate. Pre-approval is often required to make an offer on a house.

Can I have 2 mortgage offers?

Yes. You can have as many mortgage offers as you want. You are never obligated to work with a mortgage lender until you’ve signed final closing documents, so there’s no danger in applying with more than one company. The only thing to look out for is whether lenders have application fees. Ideally, you want to shop around with lenders that won’t charge you a fee to apply and check your rate.

How should I choose a mortgage lender?

You can narrow down your initial list of lenders based on recommendations, online reviews, advertised rates, and availability of the loan product you need. Once you’ve chosen 2-3 lenders that look promising, you can apply for pre-approval with each one. Then compare the Loan Estimates they give you to find the best combination of interest rates and upfront fees for your situation.

Does shopping for a mortgage hurt your credit?

Lenders do a hard credit pull when you apply for pre-approval, which typically hurts your FICO score by 5 points or less. But as long as you get all your mortgage quotes within 2-4 weeks of each other, any hard inquiries during that time will count as a single inquiry. So your score will not be dinged multiple times. Aim to get all your quotes on the same day, if possible, as this will give you the most accurate comparison between lenders.

How long does it take to get approved for a mortgage?

From application to closing, the mortgage process typically takes around 30-45 days. This can vary depending on how complicated your loan application is, how fast you respond to your lender’s requests, and outside factors like how busy the lender is or how long it takes to get a home appraisal done.

How do I get the best mortgage rate?

Your mortgage rate is largely based on your personal finances. To get the best rate possible, start improving your credit and paying down debts 6 months to a year before you want to buy a house. Try to keep credit card balances below 30 percent of their limit. You can also lower your mortgage rate by making a bigger down payment. Finally, be sure to compare rates from at least 2-3 lenders. Interest rates vary a lot by company, so shopping around can help you find the best deal.

Consult with anyone of the licensed Stanford Mortgage Advisor to discuss the process and they will explain your best options of buying a home.

When it comes to achieving your home buying dreams, Stanford Mortgage has your back. Stanford’s local loan advisors are here when you need them, walking you through the entire loan process step by step. If you’re ready to make your dreams a reality, talk to Stanford Mortgage.

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