Here's how to do your rate shopping the right way.
When you buy a home or refinance an existing mortgage, your goal should be to score the lowest possible interest rate. To pull that off, you don't want to just accept the first home loan offer you get. Take the time to shop around with different mortgage lenders. But if you're going to rate shop, it pays to do so wisely. Here are a few tips to help you along.
1. Apply with different lenders within 14 days
Each lender you apply with will perform a credit check to see if you're a responsible borrower who's worthy of a home loan. And each credit check constitutes a hard inquiry on your record.
A single hard inquiry will only lower your credit score by about five to 10 points, which isn't too bad. Multiple hard inquiries, however, could have more of an impact. But credit scoring models recognize rate shopping. As such, if you do all your rate shopping within the same 14-day period, those inquiries will all count as one single check. That will minimize any damage to your score and help you gather the information you need quickly.
2. Don't assume your current lender has the best deal
If you're applying to refinance your loan, you might assume your best bet is to do it through your existing lender. After all, that lender already knows you and is more likely to give you a great deal, right?
Well, maybe, but not necessarily. The truth is that different lenders have different lending capabilities, so it may be the case that another lender can give you a better rate on your new loan. Therefore, while it's certainly not a bad idea to ask your current lender for a refinance quote, don't just run with it. Rather, seek out other offers to see what's out there.
3. Negotiate closing costs
Just as mortgage rates can vary from lender to lender, so too can closing costs. Lenders are often hard-pressed to do better on rates, but they're often more flexible when it comes to the various fees they charge.
As such, when you're rate shopping, don't hesitate to negotiate if one lender offers a more competitive interest rate but charges higher closing costs. If that lender wants your business, it may agree to reduce certain fees, like your application or loan origination fee. And if you're refinancing, you may be able to get your lender to waive a home appraisal, thereby saving you money. You really have nothing to lose, so if there's a deal you need sweetened ever so slightly, don't be afraid to go after it.
Whether this is your first time applying for a mortgage or you've done it before, it pays to gather multiple offers before settling on a home loan. Applying for a mortgage (whether a new one or a refinance) isn't something you'll want to do often due to the fees involved. As such, it's important to do your homework and know you got the best possible deal.
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