Shopping for a Mortgage

When shopping for a mortgage, your goal should be twofold: First, shop to make price comparisons (see Figure 5.1). A recent survey showed that in major metropolitan markets, mortgage interest rates vary by 0.375 percent to 0.50 percent for exactly the same product. That difference amounts to $1,000 a year on a $200,000 mortgage. The price difference also can show up in the points lenders charge. The same survey showed differences as large as two points for the same product at the same rate, as much as $4,000 on a $200,000 loan!

Second, look for a lender with a reputation for integrity and service. Although most lenders stand behind their commitments and provide good service, there have been instances when consumers did not get what they bargained for. Ask your agent, your attorney, or the Better Business Bureau about the reputation of a lender before submitting an application.

FIGURE 5.1 The Process of Shopping for a Mortgage

Determining Your Needs and Credit Situation

Shopping for a mortgage is much more complicated than when this book was first written in 1986. It is even more complicated than in 2002 when the fifth edition was published. Today, when you see rates advertised or listed in the newspaper or on TV, you cannot assume that those advertised rates are the rates that the lender will offer you.

Before you start telephoning lenders, you must have a firm idea of the product that you are going to inquire about. Today, rates and the availability of mortgages depend on many more factors than just a few years ago.

The type of loan that you w ant sets the boundaries for pricing. Fixed-rate loan rates are totally different from ARM loan rates. If you choose an FHA or VA loan, your shopping chores are easier than if you choose a conventional loan. FHA and VA loan pricing does not yet (2006) take into account the myriad of factors that affect the pricing of conventional loans.