home loan zen

June 29, 2005 7:35 PM

How do I know if I am getting the best home loan available to me?

I did the "prequalification" stuff for a home loan last week. I'm not sure that I got the best deal. Several years ago, I was prequalified for a loan and was offered about 20k more. The only difference between then and now is that my credit score is SLIGHTLY lower and I make more than 2x as much NOW. I'm not sure that this lady (who came recommended and is a broker) is really helping me. How I can tell? Should I go to several banks and brokers? How do I do that without it hurting my credit score? I'm obviously a first time home buyer!

posted by eggerspretty to Work & Money (9 answers total)

here's some replies. i'm no expert, but here's some obvious facts:
1. prequalification doesn't mean much. that is, you can prequalify these days pretty easy, and the main meaning to sellers is that someone is vouching for you, that you could buy that place.
2. don't worry too much about the loan details until you have an offer accepted. buying a home is such a crazy ass thing, that as a first time buyer you really have to take it one step at a time. i mean you have to know financials and what you can afford, obviously. But in terms of the specific loan to get, worry about that after you're heading towards closing. in order to really get the loan, you have to have a specific place anyway, so there's not much point putting in a lot of work on it at this point.
3. when you actually are going to get the loan, call a few brokers/lenders for sure. find a person you like that makes a competitive offer and go for it. you'll learn about it.

the main thing is to take it one step at time.
posted by alkupe at 8:06 PM on June 29, 2005

Newspapers offer publish information about rates (typically, Sunday edition). Or you could check online sites like eloan.com, which will essentially make you an offer. Be careful to compare apples to apples (points, in particular).

Warning: If a website offers to provide you with mortgage rates, and all you have to do is fill out a form with your name and email address, back away slowly, and keep backing away. This is one way that spammers harvest emails (they start by selling the email address to those in the business of offering mortgages, but don't stop there). Eloan.com and some other sites do offer rates WITHOUT requiring you to register or provide any personal information.
posted by WestCoaster at 9:04 PM on June 29, 2005

Please take into consideration your local market. 'Pre-qualified' doesn't mean a lot. 'Pre-approved' does. 'Pre-approved' suggests that you have already passed credit scrutiny, that you have a down payment, and that you have income to service a certain mortgage payment. In short, a lender is already lined up to loan you X dollars. This is very attractive to sellers, since they know there is no contingency in the contract such as 'sale subject to buyer obtaining mortgage at such and such terms, blah, blah, blah'.
Through several purchases and refi's, I've not had a problem with mortgage brokers. My current broker has found better loan programs than I found by my own devices. Ask friends and family for recommendations.
posted by namret at 10:25 PM on June 29, 2005

buying a home is such a crazy ass thing

Agreed! The best you can hope for is an honest broker. Someone highly recommended. There is a lot of room for a shady broker to change terms midway through a purchase. Don't go for the lowest bidder.

Do not, in any way accept a pre-payment penalty on any loan. You want a loan you can get out of / refinance if necessary.

If you plan on staying, you'd be crazy to be in anything but a 30 year fixed loan.

Good luck-
posted by vaportrail at 10:29 PM on June 29, 2005

If you're using a real estate agent, ask them for a recommendation as well. They frequently have several brokers and/or lenders they work with and will be able to guide you to one who can work best with your personal situation.

As for getting the best deal, alkupe is right - you can only lock in your rate so far in advance, so the rates and types of loans available to you when you're actually ready to proceed may be different than what you see now.

Steps are:

1) Do your financials. Figure out how much you can afford, how much you want to pay per month, how much of a down payment you will have, whether you want to pay higher closing costs/fees in order to get a lower rate, etc.

2) Get a PAL (pre-approval letter). This will be through a broker or lender. Read what namret said about the differences. It really CAN make a difference if you're in a fast-moving market. Sellers want to sell NOW, not after the buyer dicks around with their mortgage details.

3) Start the home search, with the help of a real estate agent or on your own. Some initial "weeding" on your own is suggested. Check out websites and get a general idea of how much home you'll get for your dollar and check out the different home types available. It'll be really personal, so a real estate agent will just end up with random selections until you narrow their search down. If you find places you like, then note the MLS number. The real estate agent can log into the system and get the specifics for you.

4) After finding a home you like, then you look at making an offer and cementing the mortgage options. Be sure to do a LOT of homework on the types of mortgages available that may suit your specific situation. I mentioned this in another home buying thread, but ARM versus fixed rates have various pros and cons and everyone has opinions of them. Ensure you know how your personal situation fits in to what type you're going to get.

Best of luck to you!
posted by cyniczny at 11:21 PM on June 29, 2005

http://www.moneysavingexpert.com
posted by ajbattrick at 4:21 AM on June 30, 2005

bankrate.com is the best site I've found for comparing interest rates. Pick exactly the kind of loan you need (location, term, size), then look through the list of loans. Many of the loans listed will not be available without some hidden fee that bankrate doesn't know about, so don't think you'll get the best deal you see there. But it will give you an idea of the market. I ended up with a loan 1/8 of a point above the best reasonable rate I found on bankrate, and I was happy.

I find it curious you say your loan isn't good because it's $20k under some other earlier number. Most people judge the quality of their loan by the rate, not the size. Maybe you're just trying to prequalify for the largest possible amount? I wouldn't sweat that - wait until you're actually closing a loan to sweat.

PS: your agent may suggest you waive the financing contigency when you make an offer on the house. Unless you are really positive you will get a loan, I wouldn't do that.
posted by Nelson at 5:28 AM on June 30, 2005

eggerspretty, definitely shop around some more, and consider the possibility of keeping your money local by going with a credit union or a local bank. A lot of the smaller chain type mortgage companies will just sell your mortgage to a big corporation after a few months.

Also, you might want to ask semi-recent first time homeowners what surprises they had after moving in. I was amazed at how I went from "It'll only be $75 more than I'm currently paying in rent" to "I can barely keep my head above water" after buying my first home a couple of years ago. Utilities skyrocketed (a larger house that's 100 years old plus I hadn't had to pay for water before), property taxes hit me hard (and were more than expected), I hadn't had anything for doing yard maintenance, etc. Things will stabilize after a while, but it was scary for a few months there!
posted by kimota at 7:03 AM on June 30, 2005

We got our loan through lendingtree.com. My mom's getting a loan through them too. Once you're done applying, you get a bunch of offers from different... companies. I don't know if they're banks or just mortgage brokers. And always try your bank, sometimes they can match of beat what the lendingtree guys give you.
posted by exhilaration at 12:04 PM on June 30, 2005