Easy Way To Save Money On Your Mortgage

Easy Way To Save Money On Your Mortgage

Finding a home is exciting. Financing it is sometimes stressful. You want the best mortgage deal because your loan sets your housing budget for the next 15 to 30 years. Comparing mortgage rates is an easy way to save money on your mortgage. All you have to do is shop!

Shopping for a mortgage

Americans love to shop. That is until they’re in the market for a loan.

Let’s face it; nobody likes gathering up their last few tax returns, investment statements, and bank statements. Financial regulations require you show a paper trail for all your money. It’s the frustrating part of buying a home, but it shapes your financial future.

That’s why you should take a deep breath and be patient with the process. Let it work for you.

Unfortunately, nearly half of all mortgage borrowers don’t shop around for a mortgage according to the Consumer Financial Protection Bureau (CPPB). Failing to compare mortgage rates is a costly mistake.

How much money can you save?

So how much can you save comparing mortgage rates? Rates vary by more than a half a percent. On a 30-year fixed rate mortgage, a rate of 4-percent versus 4.5-percent is a difference of $60 a month.

Over five years, the lower mortgage rate saves $3500. Plus, the homeowner pays an extra $1,400 toward principal. Are you convinced to shop around for your next mortgage yet?

Save $3500 in 5 years with a 4% interest rate over 4.5%

Before you call lenders, compare mortgage rates with the CFPB’s interactive tool. The estimates are based off a home buyer in the same financial situation.

For example, when you compare rates for a Missouri home buyer purchasing a $250,000 house with a 10-percent down payment, the rates vary between 3.875 and 4.75-percent. By comparing rates, you can save $9,718 in the first five years. Over the life of the 30-year loan, the difference is $41,642. Are you convinced to shop around for a mortgage now?

The CFPB tool uses real data from lenders, and it’s updated daily.

Shopping around for a loan takes a few extra hours. There’s real value in it, though. In the above example, the homeowner saves a whopping $41-thousand.

Despite the savings, the CFPB found 77-percent of borrowers only apply to one lender.

Some banks give quotes over the phone without requiring your financial paperwork. Other lenders require your paperwork and a credit report. Don’t let financial paperwork be an obstacle. There are six steps to get pre-approved for a loan. Go through with the process because the savings are significant over the life of your loan.

shopping for a mortgageHow to find the best rate on a loan

Shopping around gives you a choice. You may think a conventional loan is best for your financial situation, but a mortgage broker or lender may offer a better solution.

There are FHA loans for smaller down payments, VA loans for veterans or service members, and adjustable rate loans to name just a few of the loan programs available to borrowers.

If you don’t have a 20-percent down payment, you may need private mortgage insurance or PMI. Ask your Realtor® if there are special programs in your area for first time home buyers who don’t have a 20-percent down payment. These programs may help you avoid paying PMI.

By speaking to a variety of lenders, you’ll get a feel for the best options for your financial situation, and you’ll be able to negotiate.

Loan prices vary based on when you apply for the loan, your credit, debt to income ratio, and the terms of your loan. If you get a 15-year mortgage compared to the traditional 30-year mortgage, you’ll get a lower interest rate.

You can also consider an adjustable rate mortgage. However, with rates expected to go up this may not be a good long-term option. That’s because of the price changes as the market changes.

There are ways to beat current interest rates. You do this with points. They are fees paid to the lender or broker to buy down your interest rate. The Federal Trade Commission suggests you ask for the dollar value of the points, so you know how much you are paying to get the lower interest rate.

You’ll get a quote with an interest rate and the annual percentage rate or APR. The lender calculates your APR based on your interest rate, points, broker fees, and other loan charges.

Related link: How to get pre-approved for a mortgage

How to shop for a mortgage

Before you call a lender, organize your financial paperwork. Second, use a home loan calculator to get an idea of your monthly expenses. Finally, call lenders to compare mortgage rates and fees.

Start your conversation with the various lenders by asking open-ended questions. Use the FTC’s Mortgage Shopping Worksheet as a guide.

Let them tell you the best options for your financial situation. Once you’ve spoken to a few lenders, choose a lender.

You don’t even need to leave your home for this step. Most banks will talk to you over the phone and provide guidance based on your financial situation. Understand, though, rates and fees change depending on when you lock in a rate.

Once you know the terms of your loan and how you want it structured, start the formal loan process.

Like most things in life, get three quotes. Once you own your home, you’ll hear the three quote rule quite often when you hire a contractor. With three quotes, you could save thousands of dollars.

Gather up your financial paperwork, have the lender pull your credit, and get three loan estimates.

Multiple mortgage inquiries don’t hurt your credit

Some home buyers are reluctant to shop for a loan because they worry it will hurt their credit. Unlike traditional loans, multiple credit inquiries for a mortgage don’t drop your credit as long as they’re all done within 45 days.

If you have three mortgage lenders pull your credit, it only shows as one inquiry. That’s because it’s obvious you’re just buying one home.

To accurately compare mortgage lenders, make sure they use the same loan terms. That way you’re comparing apples to apples, and will quickly find the best mortgage deal.

Based on the loan estimates, compare the mortgage rates and fees. Then, negotiate. Finally, lock in the rate you want and start searching for your home knowing you’ll pay the lowest price possible.

If you need a trusted lender in Kansas City, let me know.