How to get the lowest mortgage rate

I just got done obtaining a mortgage for my first big boy house, Yay!

But I learned a lot about lenders and obtaining a mortgage and some tricks. I haven’t been able to find a post similar to this so I figured it’d be helpful to write my own. So here is a list of tricks and realities with mortgages that I think might be helpful. I used a conventional loan and have a good credit score so some of these tricks may not be applicable to other types of loans.

The reality is, like car insurance, mortgage lending is now extremely regulated so the product that they are providing you and the tricks they historically had to scam us do not fly anymore. So you’re pretty safe to go with any lender. Just make sure you read the loan estimate thoroughly and don’t give them money until you are ready to pay them for something.

  1. Don’t get sentimental about your lender. They are selling you a loan and you are almost certainly not going to have a long term relationship with them like you will with your real estate agent. Treat a mortgage like a commodity like rice or corn-consider buying the grocery store brand rather than the brand name. Shop around to find the best rate. It will save you possibly tens of thousands.
  2. Apply with multiple different lenders, local credit unions, local banks, and large multi-state banks such as Mutual of Omaha, Sage, Better, Old National, etc. Sometimes the local lenders will have the best rates but sometimes it will be the large online lenders. Once you have all the documents you need for an application it takes minutes to apply and the little extra time it takes will be worth your time and it costs nothing to apply. If all your credit pulls for a mortgage are within 30 days it will only ding your credit score once.
  3. Lenders will do a “rate lock” for you meaning they will lock in the terms that are available on that day that you are discussing with them. You can do this at any point after you’re under contract and if you don’t do it, you may risk rates increasing and losing out on the best option. I recommend rate locking with the lowest rate lender on day 1 of you having that available and not rate locking with any other lender at this point. Pin them against each other on day 1 to get them to give you the lowest rate. They are almost always charging you a higher rate than they will be willing to offer. If they are going to play this game by not being transparent with their pricing, don’t feel bad about pinning them against each other.
  4. Do not use the lender’s quoted APR. Use the interest rate and tally up lender costs separately. These will include sections A and B under your loan estimate. All other costs are estimates early in the process and are irrelevant and going to be the same independent of the lender. Some lenders will estimate the taxes or insurance artificially low to make the APR looked better.
  5. You can have multiple lenders go through underwriting, sometimes with a cost but usually without a cost to you. It’s unfortunately extra work for them if you decide to go with a different lender but this is unfortunately the game. To get underwriting started you probably either need 1. an appraisal waiver or 2. to pay for an appraisal of the home you’re purchasing at cost to you (in my city about $750. I highly consider getting an appraisal from two lenders if rates are pretty volatile. That $750 additional cost will allow you to leverage two lenders against each other up until the very end.
  6. Lenders can “re-lock” rates. So if rates drop before closing date and you have two lenders competing for your business you can ask them to beat the next guy. The way I did this was I watched rates drop and then plateau and then told lender B, who had the worse rate, if he could beat lender A with the better rate. He beat the rate of lender A, I went back to lender A and they beat the rate of lender B again. Without having that leverage lender A would never have budged because the rate was “locked”. I re-locked with the lender about 10 days before closing, most of the underwriting was already completed for both lenders and this small move toward the end of the process saved us $12,000 over the life of the loan.
  7. Origination fees and points are two ways lenders will parse their cost for a specific loan but it is always just cost to you. Consider them in the same boat when comparing lenders.
  8. To calculate whether additional cost to you up front is worth it, use an amortization calculator to divide the total costs (points+ origination fees) by the decrease cost per month to see how many months it will take it to be worth it. This estimate will be artificially high however because 1. you should take that upfront money saved and reinvest it and 2. mortgage interest is tax deductible. If you expect to refinance or sell your home within a couple years, don’t buy points that will take 5 years to be worth it.

It’s a complicated process and such an annoying game but is a good one to play. This is the most expensive purchase most of us will ever make in our lives and the difference in cost for us over the life of the loan between the best and worst lenders was $40k and between the best and second best was over $40 a day for the next 15 years. Lenders will try to understate that difference because compared to your monthly payment it looks small but I will never consider $40 a day a small amount of money, even when we are talking about thousands of dollars. Penny pinching should be applied to huge amounts of money just the same as small amounts.

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