Best and cheapest way to get a mortgage

June 1, 2020 7:05 PM

My credit score is high. What's the best way to get a mortgage with the lowest rate and the lowest fees?

I'm potentially buying a condo. I'd like to get pre-approved so I'm in a position to make an offer.

I'm interested in a specific condo community for Reasons, and a unit is for sale. Last time I got a mortgage, I had a buyer's agent, and she had her own mortgage broker. This time... I'm not sure what to do. Do I use Better.com? My credit union? A local mortgage broker recommended by the buyer's agent?

I sold my previous residence a year or so ago. If I buy this new place, it will be my primary residence. I'll be getting a traditional 30-year mortgage, and I'll be putting down somewhere between as little as possible (say, 5%) up to 20% (to get out from under the PMI).

I'm confused about how to compare rates without triggering hard credit pulls. What's the best approach? How do I do this?

posted by cnidaria to Work & Money (11 answers total)

Best answer: Most mortgage brokers will provide you with a rate with you providing your credit score range. Usually anything above 740-760 is equivalent to them, so you don't need to know exactly what your score is. They won't pre-approve you with a stated credit score, though.

When you get to the pre-approval stage, you will need to accept a hard credit pull. However, all hard credit pulls within a 14 day period count as one, so you can do as much shopping as you want in that period. Further, a single hard pull doesn't have a significant hit to your credit score. I recently refinanced my mortgage and had five hard pulls in that period. Other than generating a whole lot of email from my credit reporting services, there was no impact to my credit score.

For buying a property, many realtors will say that pre-approval with a local bank or a big bank is superior to pre-approval from a mortgage broker. Their theory is that the seller will perceive a local bank or a bigger bank as being more reliable, and hence, more likely to close on time. I don't have the experience to agree or disagree with that. Fortunately, you can refinance your mortgage immediately after buying the property, so I'm not sure it matters too much. I went to a respected local bank for my initial mortgage, but then refinanced less than six months after buying the property.

If you do go to a mortgage broker, I would not use the one recommended by the buyer's agent. Mortgage brokers sell a commodity - mortgages resold to Fannie Mae. They all have essentially the same approval process and the same underwriting process because they are all selling their mortgages to the same investor. Hence, the comparison shopping should just be done by price. Be willing to play them off of each other. In my experience, it's pretty easy to get $500 off of any quote price (even the lowest), and you may be able to push for more than that. Be willing to simply gather all quotes in the morning of one day, then spam every loan officer with the lowest rate you find, then take the lowest rate the loan officers respond with in the afternoon.

In my limited experience (two refinances), better.com is a competitive lender, but by far not the cheapest in the market. I watch bankrate.com for the really low-price lenders, which are usually 0.25%-0.375% lower than better.com for the same price. Beware, though, that you will not get a lot of handholding from better.com, and you'll get even less from the low-price lenders on bankrate.com. In both cases I've dealt with better.com, they've been unwilling to apply their low price guarantee, so I won't bother dealing with them in the future.

If you're interested in paying the least amount down, you are probably also interested in paying as little lender fees. Each lender has the ability to offer a range of mortgage rates, with higher rates being lower cost to you. In the extreme, you can have the lender pay for your mortgage or even pay you a bit of money. You'll pay for this in the long term (via higher interest rates), but it can be advantageous for you if you are planning on moving in the near term and/or refinancing your mortgage.
posted by saeculorum at 7:20 PM on June 1, 2020 [9 favorites]

Yeah, "low price guarantee" isn't worth the pixels it's printed on. If we had a competent trading authority that claim wouldn't be allowed.

...but that aside, if you are in a hot market you may want to bias your search toward faster lenders. When I last shopped for a mortgage it was in a red hot market, and having a lender that was able to move fast and close the deal rapidly was ... quite valuable (made the difference between getting the deal and not).
posted by aramaic at 7:30 PM on June 1, 2020

Yes, shop around like crazy - any bank you do business with, anyone your agent suggests, anyone your friends recommend, any national bank or broker. And a few more after that. I was shocked by the variance in rates. I ended up getting a much lower rate from a small local bank (which immediately sold it to a large national bank) than that cited from my own bank, the bank associated with my brokerage, or several mortgage brokers. A quarter point discount on a typical loan is many thousands of dollars over the life of the loan - you'll never again have a chance to make that much from a few hours of emailing.
posted by Mr.Know-it-some at 7:38 PM on June 1, 2020 [1 favorite]

Response by poster: Correction: The initial post should have said, should I go with "a local mortgage broker recommended by the *seller's* agent?" I don't currently have a buyer's agent for this particular transaction.

Thanks for the advice so far, this is really useful!
posted by cnidaria at 7:42 PM on June 1, 2020

I'm closing on my first house in a few days. I have no previous experience with this.

That said.

I was able to get a mortgage pre-approval letter from PNC Bank without them running my credit. I have no relationship with PNC, I literally called them solely because I like their commercial jingle. Anyway, I have excellent credit, a steady job where I've been for a few years, and a decent amount of cash on hand. I self reported that to the PNC guy and got a pre-approval letter $100k over my stated intent to purchase. This probably helped me.

For my actual mortgage I went with the mortgage guy my buyer's agent recommended (and my agent was just a random hookup via Zillow, I don't know anyone), at Fairway. Literally no idea how their costs or rates compare with other places, but my rate is good (3.25%) and they've been easy to work with, which is worth a lot right now.
posted by phunniemee at 7:53 PM on June 1, 2020 [1 favorite]

My lending agent (?) said that rates are changing multiple times a day, you'll want to pull the trigger on pre-approval at the same time for all of them and rates aren't usually locked until your offer is accepted. The lender I went with didn't initially have the lowest rate, but it was close enough I was pretty confident it was a timing issue. I actually wound up with a better rate than quoted. (I also used Fairway, with an agent recommended by my realtor.) I got a blanket pre-approval letter and then one tailored to my offer amount, I assume to deter the seller from trying to negotiate for more money.

Definitely get quotes from at least a few folks, I was shocked in the differences in responsiveness and rates.
posted by momus_window at 8:04 PM on June 1, 2020

Check a credit union or two and also small local banks. We found they were consistently better rates.
posted by shadygrove at 9:02 PM on June 1, 2020

We used a service that gathers quotes from small local lenders without doing a hard pull (OwnUp) and we were soooo happy with them. I think they mostly operate in the Northeast but they are certainly trying to expand. We also got a preapproval from another local bank recommended by our agent but the rate was not as good.

In addition to the good rate (from a mortgage company we’d never heard of and would never have requested a quote from on our own) OwnUp was another party that was motivated to make sure our loan closed so there was someone besides me checking in with the lender. We actually refinanced with them a year after purchasing because it was all so easy. Both loans were sold away from the original lender but that never mattered to me.
posted by mskyle at 4:53 AM on June 2, 2020

Response by poster: Whelp, the unit had certain unexpected Flaws that mean I'm not putting down an offer, but I'm still glad I posted this Ask. Thank you all so much for this info! I feel much better prepared for my next foray into real estate debt, whenever it happens.
posted by cnidaria at 8:02 AM on June 3, 2020

The answer tends to vary with markets and over time. One house we got the best deal with a mortgage broker ( many years ago) and we refinanced with her several times as rates dropped. Each time, she got as a rate that was as good or better than I could find on my own.

More recently, brokers haven't been as good as going into the local banks. I usually check out a mix of big banks (BNG/Bank of the West is one of the least evil) and credit unions. In our market (Silicon Valley) the on-line mortgage brokers are almost always more expensive the quotes from the local branch of the bank. In these cases, I got a quote based on what I told them the value of the house and my credit report were - a firm price takes more paperwork but you can get this kind of informal quote in a matter of minutes. Your market may be different so like other said, spend a little time looking around.
posted by metahawk at 6:31 PM on June 3, 2020

I bought a house last year and applied with Better. Their rates were good, but I kept reading reviews about how try would drop the ball later in the process and hired too many unknowledgeable and inexperienced people to help effectively if there were any problems. I saw enough of those to turn me away from Better, but I took their low numbers to a more reputable lender and asked if they'd match them, which they did, so I got Better's rates at an office that definitely knew what they were doing. There is absolutely no reason not to compare offers and ask lenders if they will beat or match your best offer.
posted by Pater Aletheias at 5:02 PM on May 19, 2021