How to get the lowest mortgage rate on a new purchase?

Question

Looking for a home loan in the mid $400,000, with 20% down on the value price, a first home purchase and in the U.S.

What strategies can be applied to ensure the best interest rate possible?

What are the differences with online mortgage companies vs. going to a bank?

Is rate matching common in the industry?

Any other strategies or ideas to be aware of - for someone new to the process?

Any information and/or pointers in the right direction of trusted information is very much appreciated.

Than you.

Answer 1

Purchase loans tend to be more challenging to get the best possible rate, because you have to balance closing the loan and getting the contract. So there isn't as much time to shop around as when you do a refinance.

I disagree with the sentiment to go with your local bank. Nothing wrong with asking at your local bank and using their numbers as a baseline, but chances are they won't be competitive. There are many reputable online mortgage originators that will show accurate fees and rates upfront assuming you provide accurate information.

In the past there were a lot of issue with Good Faith Estimates being pretty much worthless. There were a fair number of horror stories about people showing up to closing and finding out fee or rates had increased dramatically. There was a law passed after the housing debacle that severely limits the shenanigans that lenders can do at closing and so there is less risk when going with a lesser known lender. In fact I would say the only real risk with a lender now days is choosing one that happens to be overloaded and or just has poor customer service in general.

Personally I have found the most competitive rates from Zillow's mortgage service and the now defunct Google mortgage. The lenders tend to be smaller, but highly efficient. They are very much dependent on their online reputations. I have heard good things about a number of larger online lenders, but I don't have personal experience so I will leave them off.

I personally wouldn't worry much about whether the loan is sold or not. Outside of refinancing I don't think I have ever talked to the bank servicing my mortgage about my mortgage. There just isn't much need to talk to them.

Answer 2

Start with the bank where you have your checking and savings account. They can streamline some of the paperwork, because they can see how much you make, and have access to several years worth of bank statement.

Legitimate mortgage companies do publish their rates. But there is no guarantee that you will qualify for the best rate without them knowing your credit score, salary, and down payment information.

There is no way to know that you have the best rate because of the time lag involved. You will pick the best one you can work with, but the rates can change every day. Even when you lock in the rates, other companies can drift lower. Once you have started down the application process you will reach a point where switching companies will cost you time and money.

Once you decide to purchase a house, the contract usually only gives you a few weeks to prove that you have financing in place. Therefore you will have to start the process before deciding on the house. Some advance work is needed to give you an idea of the maximum monthly payment you can afford, which will then based on the rate and down payment determine the maximum house you can buy.

I have had good luck with my credit union, but there is no guarantee that yours will be competitive. Keep in mind that while rates are very important, some people also value customer service, and also like that the mortgage won't be sold to out of town investors.