No. 1: Establish a baseline.
Call a lender and have your credit pulled. Do a full application and establish what you can and should be borrowing.
No. 2: Contact a mix of financial institutions and do it all on the same day.
Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution, but to really understand you must contact the lenders all on the same day for the same rates even within the same timeframe, because a bond rally could mean that mortgage rates have dropped dramatically from the morning to the afternoon. Diversify and try a mix of places, such as a direct lender, a regional bank, a credit union, a community bank and a national bank
No. 3: Decide when you want to close.
The length of your lock-in period will impact your mortgage rate, so discuss your target close date with each lender and ask about the charges for different loan-lock periods. Many lenders charge one-eighth percent more if you must lock-in the loan for 60 days. If you need a 90-day loan lock, your interest rate could be as much as one-third percent higher.
No. 4: Ask about fees.
The variation in fees associated with a loan are one reason why you shouldn’t comparison shop solely based on the best advertised interest rate. Sometimes a mortgage at a lower advertised rate can end up costing you more because of all the fees associated with it. Some lenders blend all their fees into a loan preparation fee, while others separate them out, so be sure to ask for the total amount it will cost to close the loan. Generally, a mortgage with higher fees should have a lower interest rate.
No. 5: Consider whether you should pay points.
One of the largest expenses can be the points attached to a particular loan. Each point is equal to one percent of your loan amount. In most cases buying down your rate is a wise choice! If you intend to stay in the home for the long term, such as 10 years or more, you may want to pay points to keep your interest rate as low as possible for the life of the loan. If you plan to sell in a few years, paying a lot of cash upfront to pay points may not be worth
* How large is your down payment? Interest rates vary according to your loan-to-value ratio.
* Are you buying a single family home or a condominium? A borrower purchasing a condominium with a loan-to-value ratio above 75% will pay a one-quarter percentage point higher interest rate.
* Are you refinancing or purchasing? Interest rates may be higher on a refinance, especially if you are taking out cash, which could raise your rate by one-eighth of a percentage point.
* If you intend to waive escrow and pay your taxes and insurance yourself, your mortgage rate could be one-eighth of one percentage point higher because that’s considered a riskier loan
Tanya Marchiol is a real estate and investment expert. As founder and president of TEAM Investments, she has built an empire on coaching others how to make money and prosper. Today, Tanya runs one of the most successful real estate investment firms in Phoenix with presence in over 20 states. She is a regular in the media and has recently been on Fox Business Channel. CNN, CNBC, HGTV, Sirius Satellite Radio and more.