So you've decided to buy a home or refinance the one you're in. Congratulations on taking the big step. Now, take a deep breath and think about the right way to find the best mortgage rates. Rates change constantly, making the optimal choice a moving target. The challenge is learning how to shop for offers from lenders competing for your money.
The Big Dos
Do shop for mortgage loan offers by the annual percentage rate (APR)
The "effective" APR is the most accurate reflection of the total mortgage cost, including the interest rate, lender fees (application and closing), late fees, interest points (added or deducted) and, where required, personal mortgage insurance (PMI). Any originating lender of mortgage loans must notify the borrower of the APR in writing within three days of the application.
Do use a mortgage calculator
Comparing a relatively low 15-year mortgage rate with a steeper 30-year mortgage can paint a bleak and inaccurate picture for first-time home buyers. It can seem equally dizzying when you comparing fixed-rate and adjustable-rate mortgages. Another advantage to seeking competitive offers is that consumers can punch in key numbers at LendingTree's mortgage calculator to determine monthly payments based on a wide range of options. A difference of two additional points on a $200,000, 30-year, fixed-rate mortgage can add up to $90,000.
Do check lender ratings
Before signing anything, borrowers would do well to check up on lenders. Lenders participating with LendingTree are rated and reviewed online. Another place to check-up on banks and lenders is to visit the state and national websites of the Better Business Bureau or Consumer Affairs. Ask lenders for a list of previous clients for referrals.
The Big Don'ts
Don't apply for new credit
Even if you find big-box items on sale with an initial zero percent interest rate, don't buy them! New credit requests can put a damper and long delay as the underwriters re-configure the loan offer based on additional risk. It could be a total show-stopper if your debt-to-income ratio increases.
Don't fall for huge down payment ploys
The FHA has one down payment rule that applies to all the states: "Your down payment can be as low as 3.5 percent of the purchase price, and most of your closing costs and fees can be included in the loan." Lenders are allowed to increase down payment requirements for consumers who do not meet the minimum credit requirements. Or, lenders may allow buyers to increase the down payment to shorten the term of the mortgage and save money. But there is no reason, granted the applicant seeks competitive offers, to assume they must drop a huge pile of cash to get into an affordable house.
Don't assume your credit report is accurate and up to date
Credit reports can have false entries that endanger your credit worthiness. A paid account that is mistakenly reported as delinquent or an entry that comes out of nowhere should be contested to the credit bureau making the report as well as the lender handling the loan application.