Almost half of potential homebuyers don’t shop around for a mortgage, according to the Consumer Financial Protection Bureau (CFPB), the Federal agency responsible for regulating the mortgage industry. A just-released CFPB survey of 5,000 people who secured a mortgage in 2013 found that 47 percent of consumers looked at just one lender before completing a mortgage application. A whopping 77 percent of mortgage consumers actually applied with only one lender, and rates on a 30-year fixed conventional (non-FHA) loan varied by more than 0.5 percent among lenders.
Such a rate variance should provide all the reasons you need to shop around for the best mortgage rate. Below are some answers to frequently asked questions from mortgage rate shoppers:
How much time should I take to shop for a mortgage?
Mortgage rates can rise and fall as much as .25 percent in a day.
In order to compare lenders adequately, you need to get quotes from all lenders on the same day. If you’re buying a home, you will need to get those quotes before each home offer you make until a seller accepts your offer, at which time you must select a lender. If you’re refinancing, you will compare lenders’ quotes each day until you lock a rate with one of them.
How can I be sure a quote is accurate?
There is a direct relationship between rates and closing costs, so the lower your rate, the higher your closing costs and vice versa.
The CFPB requires lenders to include all line item closing costs and annual percentage rate (APR) in their rate quotes so lenders can see what the rate would be if the fees were built in.
When comparing quotes from various lenders, make sure you’re comparing rates with fees and APRs. One rate might be lower because fees (and corresponding APR) are higher. You won’t be able to tell which lender is most competitive until you see all the fees and the APR from each lender on the same day.
How long will I need to shop home purchase rates?
Locking in a rate requires a contract on a specific property. You’ll need to shop rates until you complete your search for a home to buy.
Bear in mind, it’s not only about the rate; it’s also about the lender’s ability to perform on time. The contract between yourself and the seller will require you to have formal loan approval, an appraisal, and closing done within specific period of time.
It’s important to shop in advance too, since these periods are days, not months, and allow one or two lenders with the best rates (and fees) to get your loan underwriting approved (or at least pre-approved).
Underwriter approval is the best way to get your offer accepted by a seller because it’s an actual loan commitment. The pre-approval isn’t a loan commitment, but still carries some credibility with sellers if they know your loan officer or lender. To do this, lenders need you to provide certain documentation so they can run your credit report, although a credit check does not obligate you to use that lender.
How much refinance rate shopping is enough?
Some people begin shopping for refinances when rate markets improve, while other homeowners begin the process when they want to secure cash to make improvements, or to switch from an adjustable rate mortgage (ARM) to a fixed rate.
No matter what your reason you have for refinancing, it’s always the same process; you’ll get full rate/fee quotes from lenders on the same day, compare them, and choose the option that is a best fit for you from a pricing and service standpoint.
What can I do if rates drop after I lock my mortgage?
Each lender has their own specific policy for renegotiating locked purchase and refinance loans. Most lender policies offer about a half of a rate market dip. So, if you locked a loan at 3.75 percent and rates drop to 3.5 percent, you might be ale to renegotiate your rate to 3.625 percent. The best thing to do is ask each lender to explain their renegotiating policy and terms when you’re shopping a mortgage.