Choosing the Right Mortgage

In addition to being affected by the number of points or amount of closing costs that you will pay, interest rates are also influenced by your credit score. If you have excellent credit, you should expect to receive the advertised interest rates that appear on the Internet and in the business section of your local paper. If your credit is less than perfect, you should not anticipate getting the lowest advertised rate.

Choosing the Best Mortgage for You

Before approaching lenders to receive a good faith estimate you should decide whether an adjustable rate or a fixed rate mortgage is most appropriate. Each have their benefits, and the one that makes the most sense for you depends on your specific situation. Adjustable rate mortgages typically offer a lower interest rate initially, but over the life of the loan the interest rate can rise dramatically. Typically an adjustable rate mortgage has a lower rate for the first several years. If you are buying a home and know that you will be ready to sell within several years, an adjustable rate mortgage may be a good choice.

A fixed rate mortgage has a higher initial interest rate, but the rate remains steady for the duration of the loan. A fixed rate loan typically makes sense if you plan on remaining in the home for the long haul. Even if you are unhappy with the higher interest rate, you can always refinance later if interest rates drop.

Once you have decided whether a fixed or adjustable rate mortgage is right for you, you are ready to begin shopping for the best mortgage interest rate.

The Steps to a Great Mortgage

The first step to getting an interest rate that you are happy with is to forget everything that you may have heard about ruining your credit by shopping for a mortgage. To get an accurate quote from a lender, they will need to look at your credit score. Many people have heard that multiple inquires on their credit history can damage their credit score. This is somewhat true. If there are multiple attempts to increase the number of credit lines, it can raise a red flag to other lenders, but inquired from mortgage lenders are different. All looks at your credit report will be treated as one inquiry, as long as they occur within 45 days of each other. To make this happen, it is important to be organized. Do not approach lenders one at a time, but narrow down the field and approach at least three finalists before settling on a lender.

Take the following steps to narrow down the field and choose the best quote.

1. Determine if you want a fixed or an adjustable rate mortgage.
2. Use the Internet or the newspaper to find which companies offer the lowest rates.
3. Determine what type of lender you want. While some people are happy with an e-lender, others prefer a bank that they can visit, with local people they can talk with.
4. Call or email the eight to ten lenders that offer the lowest interest rate, and ask what their average closing costs are, and if you will be required to pay points.
5. Narrow down your list again, taking into account all costs associated with the loan. Talk to friends and family members to find out if any have experience working with the lenders that you are considering. Cross out any lenders that raise red flags through this word of mouth inquiry.
6. Contact at least three lenders for a good faith estimate on the cost of your loan. The lenders will be required to access your credit history to do this, and will provide you with a proposed interest rate, as well as the amount you can expect to pay in points and closing costs.