Buying a home is likely one of the biggest financial decisions someone will ever make, followed closely by refinancing a home. Whether buying for the first time or not, it’s important that home buyers understand all their options and the associated costs. Gain valuable insights into the importance of mortgage rate shopping, guided by expert advice from Ron Berry, Senior Vice President at Merchants Mortgage.
Why should you shop around?
With such a significant expenditure, buyers should be confident in their purchase and have peace of mind that they are making the best financial decisions for themselves. Rate shopping two to three lenders is key for borrowers to compare not only interest rates, but also closing costs, loan programs, the quality of the mortgage lender and the reputation of the loan officer. Comparing lenders could potentially save a borrower thousands of dollars over the life of their loan!
What is the process?
Buying a home can be intimidating, but shopping for a mortgage rate shouldn’t be. The best place for borrowers to start is by first asking their friends, family or realtor for mortgage lender referrals. Personal experiences from people you trust can provide insights into how a specific lender operates and help steer you in the right direction.
But don’t stop there! Borrowers ultimately need to do their own research with their own unique circumstances and preferences in mind. Consider the type of mortgage you want and seek out local lenders who provide those products. Look online to find their rates, terms and customer service reviews. Remember, though, that online published rates are unlikely to be the rate you will get for your loan, as everyone’s mortgage rates and costs vary based on their individual situation.
Once you have the lender’s basic information in hand, it’s time to send an email or pick up the phone to talk with or make an appointment to meet a loan officer at the company. The loan officer should ask you questions to determine your goals, then present options alongside fees and rates. They will explain their process so you can confidently choose the best option.
Understanding your savings account
A savings account is crucial for planning and achieving future financial goals. The usual recommendation is to have between three to six months’ worth of funds in this account that can be used to cover your living expenses in the event of a need. A savings account is also the pool of funds you should be able to pull from for infrequent costs (e.g., purchasing a vehicle, home renovations/down payments, or travel/vacation costs). As your income fluctuates or at a minimum on an annual basis, it is best to review your finances to build and maintain healthy savings habits.
To ensure you’re reaching your full earnings potential, we recommend selecting a high-yield money market account over a traditional savings account, as these often provide higher interest returns. You should also opt into automatic transfers from checking to savings so you're adding to these funds regularly. Another option to help you consistently add to your savings is to split direct deposits, so that selected portions of each paycheck are automatically deposited into your checking and savings accounts.
Keep in mind…
When shopping, focusing solely on the interest rate may not be the best deal, and a lower rate does not always mean a lower monthly mortgage payment. Closing costs and fees should be calculated with your rate so you have the full picture of what you will pay each month.
More importantly, the lender that has the best rate or the lowest payment may not provide the best experience. Not all lenders are created equal, and you should be as confident in who you work with as the rate you choose.
While the process of rate shopping can take some time, it is a vital step in the homebuying process to ensure your mortgage rate is the right deal today and in the coming years in your new home.
