Learn

2. Shop

FOR THE BEST RATE

It’s time to a) receive multiple quotes and b) compare them!
Then you’ll arm yourself with the ever important c) pre-approval letter.

Learn
receive quotes

A. Receive Quotes

Now that you are armed with the information to make you a well informed buyer, it’s time to use that knowledge to get you the best rate by having lenders fight for your business! According to the Consumer Finance Protection Bureau (CFPB), 77% of homeowners apply to only one lender, causing these consumers on average to pay a 0.5% higher interest rate; this may not sound like much, but it translates into thousands of dollars of additional payments annually for the average consumer! Quotes are free so you should shop around from the various types of lenders.

BEFORE YOU RECEIVE QUOTES, IT IS IMPORTANT TO KNOW:

  • There is no need to run a credit score or provide documentation to simply get a verbal estimate from each lender (though you should know your score and be prepared to provide each lender that data; click here to learn how to find out your score).
  • Each lender’s quote should provide a minimum of your estimated 1) interest rate 2) APR 3) estimated fees and 4) estimated monthly payment.
  • The lowest rates will be quoted for new loans (as opposed to re-financing an existing loan) and those loans used to purchase a home as a primary residence.
  • When receiving quotes, ask each lender what credit score you would need to get their best rate.  Then use our tips on Optimizing Your Credit Score (click here) over the coming weeks and months so see if you can move your score into that higher tier.

 

There is a special 45 day window following when the first lender pulls your credit where any additional credit pulls all count together as one inquiry, thereby minimizing the impact on your score.  Therefore, we recommend you shop around to receive as many Loan Estimates as you would like in this window!

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mortgage calculator

B. Compare Quotes

Have quotes in hand? Now use our I) mortgage calculator below to compare them. If you have points quoted to you (or wish to explore whether they are right for you), we also have a II) points calculator as well.

I. Mortgage Calculator

Input your quote data below.  Please sure you are inputting apples-to-apples data (for example, make sure you are using interest rate versus APR and incorporating all upfront fees they are quoting). After inputting your data into the Mortgage Calculator, if points or credits are relevant to you, scroll down further to use our Points Calculator to compare the impact of points or credits on your loan.

Home Price$
Down Payment ?$
%
Loan Term (Yrs)

Include PMI ? YesNo
PMI% $
Include taxes/insurance ? YesNo
Property Tax/Year% $

Interest Rate ? %HOA Fees (monthly) ? $
Home Insurance/Year ? $
Total Monthly Payment $1,368

Breakdown of Monthly Payment

 

The terms are important but so is working with a loan officer who will take the time to educate you through the process and not try to push unnecessary features on you.  If you feel they are pushing a different product than the one you asked for, ask for quotes for both.  You can check if a loan officer is authorized in your state by clicking here.

II. Points Calculator

A significant way you can move the internet rate lower or higher is by comparing Points vs. Credits.  Use our calculator below to determine if Points are right for you. Please note that the Base Case already is pre-populated with the data you entered from the Mortgage Calculator above.

Label
Base Case (Data from Calculator Above)
Scenario 1
Scenario 2
Scenario 3
Points (Enter total cost, not %)?
Credits (Enter as positive number)?
Interest Rate
%
%
%
%
Monthly Payment
Monthly Savings
# of Months to Breakeven?
Total interest payments (over life of loan)
Total savings (over life of loan)

 

If you plan to live in your home for a long time, points may make sense; if you plan to live there for a short time, lender credits may make sense.  If you are not sure of how long you will stay, we recommend you do neither. 

mortgage calculator
preapproval

C. Get a Pre-Approval / Pre-Qualification Letter

An important step before searching for a home is to go back to one of the lenders you received a quote from (it doesn’t matter which one at this stage) and receive a Pre-Qualification or Pre-Approval letter. This letter states that the lender has done an assessment of your financial situation and is likely to lend to you up to a certain amount stated in the letter. Note that this letter does not commit them to lend to you (nor does it commit you to work with them), but simply implies that should you go with that lender you have a very strong chance of closing the loan. Only an Approval Letter guarantees a lender will lend to you.

WHY YOU SHOULD RECEIVE ONE

  • It’s Free and Non-Committal!  You can still price out competitive quotes later and work with someone different if you choose.  
  • Often Required.  When you shop around for a home, many sellers are going to want to see a such a letter to know you are a serious buyer (even some real estate agents may ask for one to ensure they are not wasting their time showing you houses you can’t afford).  
  • Provides Competitive Advantage.  When two buyers place two similar offers, a seller is more likely to choose the one who has been pre-qualified since they are more likely to close.  In fact, it is not uncommon for a seller to accept a slightly lower bid from a pre-approved buyer than one that has not been pre-approved. 
  • Provides Important Information.  Finally, it provides you another indication of your price range so you avoid wasting time looking at unaffordable properties. 

WHAT IS THE DIFFERENCE BETWEEN A PRE-APPROVAL, A PRE-QUALIFICATION AND AN APPROVAL LETTER?
Occasionally lenders have slightly different names for these terms, but more often than not, in order of least commitment to strongest commitment by the lender:

Pre-Qualification Letter

The lightest form of commitment approval from a lender usually provided in the form of an estimate; as a result it requires the least amount of information from you.  You will usually supply a verbal overview of your income, assets, debt and credit score.  Typically no documentation or credit check is required.

Pre-Approval Letter

A strong indicator the lender will likely lend to you.  Usually requires documentation and verification of your income, assets and debt.  In addition, it will often require a credit check (which will result in a hard inquiry on your credit report).   Click here for a typical list of documentation you can be expected to provide.

Approval Letter

Guarantees the lender will lend to you (within a finite period of time from approval, usually 90 days). Requires greater documentation than that required for a Pre-Approval (basically all the items the lender would ask for if you moved forward with the loan). Should your Approval expire before finding your home, the lender will ask for updated information and run a new credit check in order to extend the approval period. Note that applying for and receiving an Approval letter does not obligate you to use this lender.

If you are looking to buy in a strong Seller’s market, you may want to consider:
1. Getting the full Approval Letter. Oftentimes the additional information required by a lender between a Pre-Approval and an official Approval is minimal; it will also streamlining your mortgage process later. 
2. If you have a Pre-Approval, you can strengthen your position by asking your lender to call the seller’s agent and to convey how strongly they believe you will be approved for the loan.

Finally, showing a pre-approval letter with a high potential pre-approval amount could backfire on you in your negotiations as it indicates to a seller that you can afford to pay a higher price.  Ask for several letters in varying pre-approved amounts to use for each of your negotiations.  Remember, these letters are provided free by the lender!

preapproval