Shopping for a mortgage
We’re all looking for a deal, so we’re carefully comparing how much items cost at different stores and across product offerings. How you shop for a mortgage is no different than how you might shop for chicken at the grocery store. You need to look at multiple vendors and the options that are available at each, and then decide which is right for you. While that feels natural for common everyday items, many first-time homebuyers are hesitant to shop around for a mortgage.
The benefits of pricing loan products can be enormous in both the short and long term! Consider this example. You approach three banks asking for estimates on a $175,000 loan with a 30-year term. Check out the difference:
Bank One offers you a 7.5% interest rate. That means your monthly payment is $1,223.63 and you will pay $265,505.14 in interest over the life of the loan.
Bank Two offers you a 7% interest rate. With this bank, your monthly payment is $1,164.28 and you’ll pay $244,140.57 in interest over 30 years.
Bank Three offers you a 6.5% interest rate. Here, your monthly payment is $1,106.12 and your lifetime interest is $223,202.85.
When you adjust the interest rate by even just a percentage point, you could pay $100 more per month and more than $40,000 in added interest over the life of your loan. That difference could send a child to college, buy a car or just help with your monthly grocery budget.
Knowing that the terms of your mortgage could save you money, you now know that you need to shop around before you settle on a financial partner. But how do you get started? We have a few recommendations for you!
Take a homebuyer education course to learn about different mortgage products. While 30-year fixed-rate mortgages are the most common, they are not the only mortgage option out there. Through our Homebuyer Education program, you’ll learn about different loan types and how they vary. Your specific financial situation will determine which loan product is right for you. With the knowledge of loan products in your pocket, you can approach potential lenders with more information and confidence.
Collect recommendations from homeowners you know. Trusted sources like family members, friends and REALTOR® partners can provide recommendations for reliable financial partners. When you approach banks, credit unions and community financial institutions with a recommendation, you have an immediate relationship that can make the process smoother. Don’t go blindly with one recommendation, though. As we mentioned earlier, the right mortgage for you depends on your circumstances, so what works for a friend may not work for you!
Look beyond the big banks. When you need milk, you go to the grocery store. When you need a loan, you go to your bank. While that makes sense, it’s not always the best option for your mortgage. While banks offer mortgage loans, they may not have the best rates in your area. Credit unions often have competitive options, and other mortgage-centric financial institutions could be a great choice as well. Even organizations like United Housing have lending options available for homebuyers. Don’t be deterred if one bank comes back with a pricy option – keep looking for other opportunities!
While mortgage shopping may not be as fun as buying a new outfit, taking the time to find the right deal is enormously impactful today and into the future. If this feels overwhelming, we understand! Start with step one and take our Homebuyer Education course to build your mortgage understanding and overall homebuying confidence! We have online, in-person, night and weekend options, so there is a class that will fit your schedule and needs. Once your course is complete, you’ll be on the path toward homeownership in no time.