By Gerri Detweiler
Are you getting ready to shop for a mortgage? You may be intimidated by stories about how much more difficult it can be to qualify these days, but don't let that stop you. Borrowers are still getting loans, and when they do, their rates are often remarkably low. Still, to land a sweet deal you're going to have to find it. Here's how:
Get organized. You will be gathering and reviewing lot of information during this process, so find a way to collect and compare it from the start. Notes on the back of an envelope won't cut it here. HUD offers a free good faith estimate form you can print and use to compare various loan offers. It's not perfect, but it is helpful. And the CFPB is also working on easier-to-understand standardized mortgage disclosure forms. They are still evaluating feedback on the proposed form, but in the meantime, you use it as a guideline when you shop. Just fill in the blanks yourself as you talk with prospective lenders. (And if there's anything you don't understand on the form, you still have time to share your feedback with the CFPB!)
Check your credit. You knew I was going to say this, right? Without this information, you're shooting in the dark. If you haven't done so already, get your credit reports from all three major credit reporting agencies at AnnualCreditReport.com. Purchase your scores or get a free credit score tool (like Credit.com's Credit Report Card) to get an idea of where your credit stands. Your credit score is very likely going to figure into the rate and program for which you qualify. If you will be applying with a co-borrower, make sure he or she does the same.
Know what you want. Fortunately many of the exotic loans, such as "pick a payment" loans, disappeared in the mortgage meltdown. And with rates as low as they are today, it usually makes sense to get a fixed-rate loan. So your basic decision may be easier than in the past: Do you want a 30-year or 15-year fixed rate? This allows you to compare costs for the same type of loan with multiple sources.
You'll also need to know how much you can realistically afford to pay each month without painting yourself into a financial corner. I remember talking a few years back with a loan officer during the housing boom who said that when her clients told her they were being cautious about borrowing too much, she'd praise them. "Good for you, that's smart" she'd say. And when clients told her they wanted to borrow as much as they could qualify for, she'd say, "Good for you. You deserve it!" Your loan officer can tell you how much you qualify to borrow, but you are the only one who can really assess how much you can affordto pay each month.
Try different sources. This is where shopping gets confusing. Once you start applying, you will get quotes from various lenders. Understand that without a full application and credit review, it is difficult for a loan officer to give you an accurate rate quote. There are a number of factors that go into determining which program and rate you qualify for, and small differences can change your quote dramatically. Also understand that once you start shopping, your personal information may be sold as a "lead," resulting in sales pitches from other lenders.
There are several places you can shop:
- Online mortgage quotes can provide you with multiple quotes from a variety of lenders who offer loans in your geographic area. This can help you gather a lot of information about prospective lenders quickly. Again, though, you need to understand that when you provide a minimum of information to obtain a quote, you'll get a quote for an advertised rate that may or may not apply to your situation.
- A local bank or credit union may be able to offer you an attractive rate that may beat out other options. It's often easy to join a credit union, so even if you don't currently belong to one, don't rule that option out. And your bank may offer you a deal in order to continue to build on the relationship.
- A mortgage broker will be able to shop your loan among multiple lenders to try to find the best deal. While they were maligned for putting borrowers into bad loans during the housing boom, if you find a broker you can trust with plenty of experience, it can be more like working with a trusted financial planner than a huckster just hoping to make a quick buck.
Make it a sprint, not a marathon. If you limit your mortgage loan shopping to two weeks or less, you're less likely to do damage to your credit scores. If you supply your Social Security number on an application, you can assume the lender will pull your credit reports and scores. And every credit pull generates an "inquiry." Multiple inquiries in a short period of time can lower your credit scores. But when it comes to mortgage-related inquiries, those within a short period of time -- anywhere from 14 to 45 days depending on the scoring model being used -- count as one.
No pain, no gain.The truth is, mortgage shopping can be frustrating. There will be times when you feel like the lender is asking you for way too much information, or you'll feel like the process is never going to end. But keep it in perspective. If you are successful in getting a new home loan or refinancing, you'll likely get a loan at historically low interest rates that will benefit you for years to come.