Shopping The Mortgage

January 2, 2008 10:23 PM

How and when do I "shop" a mortgage? (first-time buyer questions inside)

So, I've got a lender I'd like to work with (found via referral). But I want to make sure that I'm getting a fair deal, so I'd like to "shop around" and see that the rate/closing costs/points/etc that I'm getting are competitive. But I'm not sure when or how i should shop the mortgage. Do I call and compare before i've found the home, after my offer has been accepted / entering contract, or what? Basically, I'm looking for a timeline of the loan process when buying a home with regards to shopping lendors. And how does "locking in" a loan figure into this?

posted by escher to home & garden (12 comments total)

www.bankrate.com for starters, if you haven't yet.
posted by small_ruminant at 10:28 PM on January 2, 2008

The timeline kind of depends on whether you want to be preapproved before putting in an offer - if that's the case you'll have to do the shopping around first - if you are happy to find the property and put an offer in and risk losing the property because you cannot raise as much money as anticipated you shop around after.

Once you are preapproved you can normally get the preapproved terms for a certain period of time (3 months in my case). Unless you have a good idea of how much you want to borrow, on what terms etc you would be better off looking at both properties and finance options until you have a better idea what you want.

In any case do as much research as possible to make sure you fully understand the different finance options, the buying process etc as it will help you immensely when you do find your property.
posted by koahiatamadl at 12:16 AM on January 3, 2008

It's not required, but you really should get pre-approved for your mortgage before you put down an offer for a home. Sellers will favor buyers who have proven that they can get the money to buy the home, and many sellers will not take your offer seriously until you have the financing setup. Also, you won't really know exactly how much you will be approved for unless you get pre-approved, so there is a risk that if you don't get pre-approved you will not be able to get financing for a house you put an offer in for.

You might want to check out the Zillow Real Estate wiki for advice in general, and they have a guide about pre-approval.
posted by burnmp3s at 4:14 AM on January 3, 2008

Another good source for mortgages is a credit union; they often have more flexibility than a larger lender. Almost everyone is eligible to join one somewhere. The loan officers at mine have been very helpful with answering the sorts of questions you have.
posted by TedW at 5:01 AM on January 3, 2008

I will give you a cautionary tale from an experience I had as a first time homebuyer. I got a good deal from a bank and was proceeding toward closing but when I asked for the Truth in Lending paperwork form the lender outlining the exact terms and costs of the loan, he turned in to a weasel. It turns out the weasel was trying to stick me with two horrible loans, one a negative amortization loan, and it was nothing like what I was told I was getting. Did I mention I have a real estate license? No, and I didn't mention it to the weasel who saw a single female buyer and thought he could stick me with a very unfavorable loan package. My credit score was 780 and I had 20% down. I should have been getting the best terms possible, not the worst. I had to switch lenders at the last minute, less than 10 days before the closing, and I went to a mortgage banker instead of just a bank, (not a mortgage broker, a mortgage banker), and I got a very favorable fixed rate loan and closed. It was a very emotional time and it was my first home purchase and the seller was over 90 years old and had been hospitalized prior to the closing date. The first lender was planning on trying to just spring that unfavorable loan on me at the closing where all the pressure is to sign. You are legally entitled to full disclosure of the loan and the loan terms at least 24 hours before closing and you should have it before then, you might have to ask for it. My advice is to talk to a few people, find out how your credit rating stacks up and what you can afford and be an informed consumer. Many real estate companies and lenders offer first time homebuyer workshops (keep in mind they are hoping to snag you as a customer), places like Goodwill or affordable housing coalitions have homebuying workshops, www.naca.com is a non-profit housing advocacy group that offers workshops and also offers their own mortgages. Attend as many workshops as you can so you understand the process better. the more you understand, the less you are liable to be screwed by someone. I think most people are not out to screw you, but some are and sometimes it is hard to tell the difference. Good luck!
posted by 45moore45 at 5:29 AM on January 3, 2008 [1 favorite has favorites]

We got pre-approved by our real estate agent's preferred mortgage broker, then I took that deal to two other brokers and told them they could have our business if they could beat it. After a week of emails all around, shaving points and fees off all the while, the first broker came through with what seemed like the squarest possible terms.

Just remember: even though it seems daunting and impossible and scary and opaque, they need you more than you need them.
posted by notyou at 7:40 AM on January 3, 2008

I've gotten great rates and excellent service from my credit union. The service was kept in-house, and they automatically transfer my payment (at my request). Previous mortgage was sold to an out-of-state company, and they were a constant hassle, claiming it took 10 - 14 days for my payment to get to them by mail. So ask if the loan will be sold, and who will do the processing.
posted by theora55 at 8:00 AM on January 3, 2008

Definitely get pre-approved prior to house shopping so you know what price range to look for and so sellers and agents will take you more seriously. A caveat on shopping for the best deal: don't get a quote from everyone under the sun. In order for a broker or banker to give you an accurate quote they will want to pull a credit report, and too many pulls can bring your score down. A good rule of thumb is to get three quotes.

Locking the rate won't be a concern until you actually select a property. There are extended locks of 90 to 120 days, but those rates will be higher than a 15 or 30 day lock. Good luck!
posted by curlyelk at 8:15 AM on January 3, 2008

I guess i should have stated this then: I've already been pre-approved for a loan with my preferred lender (lender A). My wife & I have done a bit of research by reading a couple of books and many websites, and we've figured out what we'd feel comfortable paying each month in mortgage + HOA + misc. We then figured out what price of home this would get us with a 30 year fixed mortgage with 20% down.

Let me revise my question: I have an estimate from lender A that showed a specific rate, a specific amount for closing costs, etc. But these were stated to be estimates, and nothing was "locked in" until the actual loan was happening. If I tell lender A that "I got a quote from lender B which has a lower rate/closing costs" they'll just say "Well, what we gave you is an estimate, we can't really say what the rate will be when the time comes". Basically, I'm not sure how you can shop around with just estimates. Or should our estimate/pre-approval be "locked in" at a certain rate for a certain period of time?
posted by escher at 10:25 AM on January 3, 2008

The only part of the equation that should be unknown at this time is the rate, taxes, and insurance. Obviously the originator can't guarantee what rates will do between now and the time you are ready to make an offer and they cannot lock a rate until you are approximately 30 days from closing (unless you do an extended lock).

All other fees and costs they should be able to pin point fairly accurately on the Good Faith Estimate. Examples include the appraisal fee, title company fees, and fees from the orginator and/or originator's company. These fees shouldn't vary too much from time of estimate to time of close - if they do its a red flag. Other costs on the GFE you'll see that are truly estimates and may change: Amount taken out for HOA dues, prepaid interest, taxes, and insurance. The amount taken out for these depends on time of month, time of year, and other factors. You can compare rates among competitors based on today's rates and likely the lower rate today will also be the lower rate down the road.

In short, you can take the estimate you have from Lender A and see what Lender B has to offer but you won't have everything locked in until you have a home picked out.
posted by curlyelk at 11:45 AM on January 3, 2008

In short, you can take the estimate you have from Lender A and see what Lender B has to offer but you won't have everything locked in until you have a home picked out.

At which time, you can still shop other lenders to crank out the most favorable terms.
posted by notyou at 1:21 PM on January 3, 2008

Er, meant to include: since nothing is final about the deal and the loan until you sign all that paperwork.
posted by notyou at 1:22 PM on January 3, 2008