Mortgage rate Shopping

Even Today's Super-Low Mortgage Rates Get Lower When You Shop

Sure, just about any approved applicant is going to get a low rate right now. With 30-year fixed rates in the 3s and short-term loans in the 2s, it's actually very difficult to get a high rate. Still, don’t short-change yourself by jumping into a decision.

You can drop your rate even more if you know what to look for when searching for a rate.

Yet consumers can save up to 0.50% off their rate by getting quotes from at least three lenders.

Here are other common mistakes that, if avoided, can save you money each month for as long as you have your loan.

Mortgage Rates Are Heavily Based On Credit Score

Before you begin a mortgage rate hunt, it’s crucial that you take stock of your credit.

An undesirable credit history can result in lower credit score, leading to a higher rate quote.

According to Fannie Mae, an applicant with a 660 score, putting twenty percent down, will pay $4, 000 more in upfront fees for a $200, 000 mortgage, compared to a 740-score applicant. The lower-scored borrower could accept a higher rate of about 0.50% to offset the cost.

Either way, that’s a large expense.

A common mistake consumers make is assuming that their credit is up to par. Know these three tips to ensure the best credit standing.

1. Check your own credit

You can access three different credit reports, from the major consumer credit reporting companies - Experian, TransUnion, and Equifax - for free by visiting the government-sponsored Annual Credit Report website.

If you notice credit accounts you don’t recognize or late payments that didn’t really happen, contact the associated company and open a formal dispute.

2. Make the payment before your 30-day "grace period" expires

A late payment won't show up on your credit report until you are 30 days past due on your credit card, auto, or other debt payment.

If you're 20 days late, don't assume you're already late. A few more days can hurt. Send in that payment.

“Having just one 30-day late payment can drop your credit score considerably, forcing you into higher interest rates or possibly dropping you below the minimum credit score requirement, ” says Mary Blanchard, vice president and mortgage banker with PrivatePlus Mortgage in Atlanta.

3. Rate shopping doesn't hurt your credit

Every inquiry made on your credit can drop your credit score slightly.

“However, a common misconception is that when more than one lender checks your credit score, this will damage your credit rating. This is not true – the credit score companies allow a certain amount of inquiries from the lending institutions, provided it is for a specific request like a mortgage inquiry, ” Jenalee Herb, agent with Nothnagle Realtors in Pittsford, N.Y., says.

Know The Full Cost Of The Loan

As a rate shopper, understand the difference between the mortgage interest rate and the annual percentage rate (APR).

The APR represents all the costs of the loan, including closing costs, discount points, mortgage insurance, and loan origination fees. It is represented as a percentage. For instance, a loan with a 3.75% rate might have a 3.89% APR.

The loan APR is typically higher than the interest rate, but provides a more accurate calculation of the total cost of your loan.

“A rate on ‘Loan A’ that appears lower than the rate on ‘Loan B’ may actually cost you more, ” says Herb. She offers this example: you are offered a conventional loan at 3.625 percent and an FHA loan at 3.5 percent.

But the FHA mortgage comes with an APR of 4.44, compared to an APR of 3.79 for the conventional option.