Photo (cc) by Images_of_Money
Shopping for a house is fun. Shopping for a mortgage, not so much. But it warrants just as much of your attention: If you wouldn’t consider paying an extra $50,000 for a house, why would you accept a mortgage rate that’s 1 percent higher and could cost $50,000 more over the life of the loan?
A mortgage may just be a bunch of numbers on paper, but so are coupons – and people certainly clip those to save a few bucks. Far fewer people, however, try to negotiate mortgage rates – maybe because they just don’t know how. Watch the video below to hear Stacy explain how you can get the best mortgage, and read on for more details and tips on the process.
Want to get the best possible loan at the lowest possible cost? Follow these three steps…
Step 1: Get your credit in shape
Your credit score affects what rates you’ll get on loans, so you want to make it as high as possible. If you don’t know where you stand, check out How to Get a Free FICO Score instead of paying a reporting agency for one. And remember, your credit score is nothing more than a number reflecting your credit history, and that’s available free once a year from each major reporting company: Equifax, Experian, and TransUnion.
Go to AnnualCreditReport.com to get yours, and if you stagger the different companies’ reports four months apart, you can check your credit for mistakes and inquiries three times a year for free.
Once you know what’s on your report, one thing not to do is pay for credit repair. Nobody can change your credit overnight, and most steps worth taking you can do yourself.
Instead, review your report for any errors or negative information. Ask for corrections on errors and write companies asking them to remove the negatives. It won’t always work, but it doesn’t cost a thing to try. For in-depth info, including how to format letters, check out 3 Steps to Improve Your Credit History.
Understanding how your score is calculated and what you can do to raise it is also important. We covered that in 3 Tips to Raise Your Credit Score, Fast.
But the truth is that raising your credit score requires time and patience. In the video above, Homebuyer Jeff Pharr spent more than a year polishing his credit. Time well spent? Absolutely. From the front page of MyFico.com: “A 100-point difference in your FICO score could mean over $40,000 extra in interest payments over the life of a 30-year mortgage on a $300,000 home loan.”
If you’re a long way off from buying a home but are worried about being prepared later in life, check out Tips to Help Recent College Grads Build Credit.
Step 2: Search for rates and get the facts on fees
Money Talks News chief Stacy Johnson refinanced his mortgage a couple years ago at a time when the average rate was 5 percent. He got 4.75 percent and paid only about $600 in fees – far less than most companies were demanding.
How’d he do it? Stacy started by going online and looking at mortgage shopping sites. (We have one of the best around right here.) Then he picked four lenders with the lowest annual percentage rate, known as the APR.
Next, he called those top lenders, confirmed their rates, and asked in detail about their fees. He made a breakdown of those numbers on Microsoft Excel, something easily duplicated with Google Documents. He also made sure to request a good-faith estimate, which confirmed in writing what they told him over the phone and allowed him to check their numbers at his leisure.
Step 3: Send the lenders to war
The next thing Stacy did was the easiest part, and after your hard work you’ll enjoy it too: Harness the power of competition!
Armed with the rates and fees from four lenders, Stacy called them individually and simply told them exactly how their competitors were besting them. If one lender quoted 5 percent APR, he pointed out the other guy had 4.75 percent. $800 for a processing fee? No way – the competition wasn’t charging anything for that.
Once you talk a lender down to something reasonable, sign on the dotted line. But make sure the settlement statement reflects everything you bargained for.
As mentioned in the video above, being pre-approved (not just pre-qualified) is critical before you see your first house. Pre-approved means your lender has already agreed to lend you the money, providing the house properly appraises. That’s as good as having a suitcase full of cash in the car with you, because it allows you to pounce the instant you find what you’re looking for.
If you aren’t sure that you’re ready to own, check out our story from Monday, Which is Better: Renting or Buying a Home?