Shopping for my recent mortgage loan was a pain. It shouldn’t be this hard! I had hope for Zillow, but a recent quote request for my same loan only got two offers from lenders, both of which weren’t very good. Ah well. Until it gets better, here’s how I would go about things if I could go back and do it again.
The Primary Goal
The most common pitfall with mortgages is the classic bait-and-switch. They lure you in with a rock-bottom rate and low closing costs… until signing day when your final HUD-1 statement looks completely different. Fees get changed, and by then is really hard to back out. Good Faith Estimates are not legally binding, and there is no real penalty for lying on them. In addition, interest rates change every day. If they don’t list their rates publicly, how do you know if the next day you’re still getting their “best” rate? “Oops, rates went up!”
I think the best thing to do is to be prepared, so that when you are ready you can go out and obtain some firm rate quotes, and lock it in. I would not sleep well until I had a loan commitment from the lender, an agreement on closing costs, and a signed rate-lock letter.
I. Prep Work
- Learn about mortgages. Many people rely on their mortgage broker to tell them what kind of mortgage to get. This is nice, if you have a honest, unbiased broker. This is also how people got talked into 0% down subprime adjustable rate mortgages. I hate the idea of signing up for something you don’t understand. Some reading suggestions: Fixed or adjustable? Loan term? Paying Points?
- Fill out a Uniform Residential Loan Application. You’re gonna have to provide this information anyway, so why not do it ahead of time. Download it here.
- Save and/or make copies of all your supporting documentation. For a full-documentation loan, you will need at a minimum your last two months of paystubs, bank statements, and investment statements. (More assets is better, but for simplicity I only provided my primary accounts and left out the ones with tiny balances.) You’ll also your last two years of tax returns. If you’re self-employed, they’ll want two years of those returns as well, including your accounting books for this year. Collect whatever else might be important, including any divorce or bankruptcy paperwork.
- Get a copy of your credit report from all three bureaus. Getting reports should be free. A score is also helpful, but not necessary since they will pull their own scores anyways. See here for ways to get a free credit score. Check for inaccuracies, and get them fixed as soon as possible. File dispute forms online at each bureau, and follow up.
II. Find Potential Lenders
This part should be pretty easy. Suggestions:
- National credit unions – Navy Federal, Pentagon Federal (1st and 3rd largest in the US)
- Local credit unions and banks
- Huge national banks
- Upfront mortgage brokers
- References from Realtor, family, friends
- Websites, both from aggregators and direct lenders
If you’re in the military or have direct family in the military, check out Navy Federal Credit Union for some great rates. I’m trying to sign up my family member right now in preparation for our next mortgage.
Some of this is personal preference, but I think most brokers and websites have access to the same general rates for common conforming loans, because they rely on what the secondary wholesale market is providing. Credit unions and local banks sometimes lend their own money, which means their rates might be better (or worse).
Next time: Comparing Offers, Negotiating, etc.
The post is a new addition to my Experiences in Buying A Home.