5 Proven Strategies to Shop for a Mortgage Rate

Educated consumers will find the best options when they shop for a mortgage rate. It is a mistake to simply go to one lender and accept the given quote. Instead, consider your options and use these tips. 

#1 Educate Yourself

Before you shop for a mortgage rate, you should know the following things: your credit score, the national prime rate and any FHA options available to you. Your credit score will give you an idea of whether you fall into a low risk or high risk category. The national prime rate is a good standard from which to determine a baseline for your interest rate. Finally, FHA options can greatly reduce the expense of your loan if you qualify. Research these prior to seeking purely private loans. 

#2 Think in Terms of Monthly Payment

Your interest rate and total mortgage size does not affect your ability to pay a loan nearly as much as your monthly payment. You should have a written budget for your expected monthly payment before going into any loan negotiation. This tells you the size of mortgage you can afford. After finding this budget, think about how much you can reasonably put down for a down payment. Adding this amount to the size of mortgage you have budgeted for, you will know the price range to look for in a home and the interest rate you desire. 

#3 Work with Lenders Known to You

Good credit borrowers will get the best rates from lenders they have a relationship with. If you have successfully paid off a student loan, car loan or other mortgage with a specific bank or lender, approach this same lender first to ask for a quote. Since the lender knows you have the ability to be a responsible borrower, the lender will be more willing to compete for your business than a lender who is not aware of your risk level.

#4 Negotiate with Terms

Your mortgage rate does not exist in a bubble. It is highly related to the terms of your loan, especially your loan length and monthly payment. If you are looking for the lowest mortgage rate possible, budget for higher monthly payments that close the loan faster. This type of loan will be less risky for the lender. The lender will reward you with lower interest rates as a result. Opting for a 15 year mortgage instead of the longer 30 year option can save you thousands of dollars in the long run.

#5 Know When to Walk Away

The smartest mortgage shoppers will have a bottom line. Without a bottom line, you can get caught up in the heat of negotiation and end up paying far more than you intended to. Lenders try to entice borrowers with loans slightly above the asking rate. Even this little bit, though, will cost thousands of dollars on a 15 year loan. Recognizing you always have options to seek another lender and get another quote will save you money not only on the mortgage rate but potentially on the sale of the home as well. Borrowers with a bottom line will ultimately retain the power to decide when and where to spend their money.