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How to Shop for the Perfect Mortgage

Pick the right mortgage loan program

Selecting the right loan program for your situation is one of the most important factors in getting an affordable mortgage. Unfortunately, it’s also probably one of the least understood and least considered factor by most borrowers (and loan officers). Yes, loan officers.

That’s why it is critical for you to educate yourself on the various mortgage programs available to you. At the highest level you want to consider three key loan program categories:

  • Mortgage type: Considering government-backed loan programs (i.e., FHA, VA, USDA) can give you special benefits or accommodate special qualifying circumstances, whereas conventional loan programs are more common and satisfy most borrower needs.
  • Interest rate type: Most borrowers appreciate the certainty of a fixed-rate mortgage. However, in a rising rate market or if you only plan on being in your home a few years, an adjustable rate loan can provide a very affordable alternative.
  • Loan size type: Most mortgages are less than conforming loan limits set by Fannie Mae and Freddie Mac, who ultimately finances most mortgages in the US. These loans get the very best rates and terms. However, if you are buying a larger home or in a high-priced housing market you might have to opt for a non-conforming loan, sometimes called a Jumbo Loan.

Each of these categories can be mix and matched to create a multitude of options. Make sure you ask your loan officer about all of the loan options for which you might qualify.

What is a mortgage rate?

Mortgage rates are the interest rates charged on a loan to purchase or refinance a residential home. These interest rates can be fixed or adjustable. They are determined by the lender in relation to correlated yields in the larger bond market.    

How to get compare loan programs and rates

Getting the right mortgage and a low rate is easier than you might think. Here are four simple steps to ensure you get the best mortgage rate available for your situation:

  1. Get your credit score. There are lots of opportunities to get an indicative credit score and a detailed analysis of your credit report. Many credit cards and websites will give you a free credit score and coach on how to improve your credit. If you don’t already have a service like this we recommend our affiliate partner Credit Karma.
  2. Carefully consider your mortgage loan options. There are lots of options and many of them are designed for specific financial scenarios. An experienced loan officer will ask a variety of questions to really grasp your current financial situation. Then they should present you with at least a couple of potential loan programs that will meet your goals and financial scenario.
  3. Compare lenders, paying close attention to loan costs and fees. It’s okay and even encouraged to shop for your mortgage. Although most mortgage companies provide very similar loan programs, depending on the experience of the loan officer or structure of the mortgage company rates and fees can vary substantially. When comparing lenders it is essential to compare loan estimates, which are standardized by law and allow you to compare apples to apples, line by line.
  4. Always get a loan estimate. The loan estimate is your best tool for comparing loan programs and mortgage lenders. They are standardized and very easy to read. All fees must be disclosed and are required to be within an acceptable ‘tolerance’ from this estimate to the final closing costs. If a loan officer is hesitant to give you a loan estimate before committing to move forward with them–you should find another lender.

How to Pick a Mortgage Lender

When picking a mortgage lender you are looking for experience and responsiveness. Most lenders have very similar loan programs and rates. However, an inexperienced loan officer or sloppy loan processing can cost you hundreds of dollars in fees and thousands of dollars over the life of your mortgage.

Make sure a mortgage lender that asks a lot of questions, seems sincerely interested in what you are trying to achieve and is responsive to all of your questions and requests. During the loan process, which typically takes less than 30 days, you should be in almost daily contact with your loan officer and processor (the person managing the documentation and qualification process).

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