More and more people begin their home search online. Understanding how to shop for a mortgage online can help save time and money.
Shopping for a new mortgage is an important step in the home buying process that many new homeowners neglect. Avoiding points and getting the lowest rate can save buyers tens of thousands of dollars over the life of their loan, sometimes even more. With the advent of the web, more and more borrowers begin their search online. Here are some tips for online mortgage shopping.
Watch-out for Teaser Rates
Sites like www.bankrate.com and others often have a variety of lenders offering rates. In order to compete on these sites, many lenders offer rates on the site that are either not possible to qualify for or that have to be bought into with points. Points are upfront payments that buyers can pay to secure a better rate. Typically, 1 point is equal to 1% of the loan amount. For example if a borrower has to pay 1 point on their $100,000, they would have to pay an additional $1,000 upfront.
The best way to avoid falling into this trap is to simply call and ask for their latest rates. Banks are usually able to give borrowers an estimated rate based on a given credit score. Be sure to ask if there are any points or additional fees associated with this loan and, most importantly, how long the quoted rate is good for. Rates change often, so when rates are low be quick.
Credit Score
Before a borrower begins shopping it is imperative that they know their credit score. This helps a borrower determine the types of loans they will be looking for. Buyers with excellent credit should expect the lowest rates, no points, and between 5-10% downpayment requirements. These borrowers should expect every company to offer their best rate and should be successful by simply calling three to four different mortgage brokers. Mortgage brokers typically can secure rates .25% to .50% lower than a borrower simply walking into a bank, so expect to get a different rate if calling the bank directly. Banks traditionally offer mortgage brokers wholesale rates because they do a lot of loans, a system akin to shopping at Sam’s or Costco vs. Walgreens or CVS.
Borrowers with average credit should expect to see rates from .25% to .75% higher than rates stated on websites. These loans might come with point requirements and the downpayment requirement will probably be slightly higher at 10%-20%. These borrowers usually benefit from trying a broader spectrum of mortgage brokers and possibly even going directly to several banks.
Borrowers with weaker credit will have their work cut out. Starting with the web could be very tricky because there are a lot of scams out there. Be very wary of promises of low rates or no documentation loans. It's also usually better to go directly to the bank because they can better tailor a product to fit the needs of a borrower with blemished credit. There will be significant upfront costs and a borrower still might qualify for the loan. Additionally, expect to pay rates 1%-3% higher than the standard rates. Again, be careful. Regardless of a borrower’s credit, they should always seek to get the best rate. If the rate seems too high, it is probably better to take a year or two and pay off debts.
Starting the mortgage search on the web can be tricky, but know what to look for and what to expect will help cut through the web clutter.
