Adventures in house hunting
Millions of people shop online every day. And let’s face it, it’s easier to sit down in front of the computer with a cup of coffee wearing only your unmentionables to shop rates online.
Most people visit a lender’s office only when it’s a last resort, when their Realtor says, “I’d love to show you every house and ranch in the valley ” all 8,632 of them ” but I probably won’t live that long. Let’s narrow things down a bit.”
“But I LOVE shopping for things online,” you say. So do I. But if you Google “mortgage interest rates,” you’ll come up with over
2 million hits. Do you really have that much time and energy to shop for a rate?
Note: shopping rates isn’t bad, but if you prequalify with more than one lender, it could affect your ability to borrow money.
Every time you apply for a credit card or another type of loan, the lender checks your credit history. Even if you have great credit, these checks show up as inquiries on your credit report. Inquiries are an indicator of credit risk; the more inquiries on a borrower’s credit file, the more likely it is that the borrower will not be able to pay his or her bills.
An inquiry doesn’t necessarily mean you are getting all the loans you apply for, but the credit reporting firms don’t know that. You could be running up thousands of dollars in debt. Many homebuyers get prequalified more than once when shopping for a home loan, generating multiple inquiries on their credit report.
The good news is, inquiries have a very small impact on your actual credit score. Late payments and high debt are more serious issues. But homebuyers who continue to shop for loans over a period of many months could ultimately hurt their chances to get a home loan. So don’t prequalify at every Web site you visit.
Again, your best bet is to talk with a local lender, whether it be your banker, mortgage broker or credit union. They can sit down and review your credit with you and point out any potential problems. They can also assist you in repairing your credit. Even if you have some “dings” on your report, a lender can usually still give you a home loan, but you’ll have to pay a higher interest rate.
And really, what’s so bad about that? Most homeowners refinance within a few years anyway, so if your credit “score” goes up during this time ” you’ve been making your payments on time and you haven’t gone over to the dark side in debt ” you can get a new loan with a lower interest rate and lower payments. And all this time, you’ve been living in your very own home and getting a break on your taxes.
But you still want to find the best rate, right?
When you are ready to shop for a loan, you have two basic types of mortgage “stores” to shop ” direct lenders, such as a bank or credit union, and mortgage brokers.
Direct lenders have their own money to lend. They make the final decision on your application. Mortgage brokers are intermediaries who, like you, have many lenders from which to choose.
Direct lenders have a limited number of in-house loans available. Mortgage brokers can shop many lenders. If you have special financing needs and can’t find a direct lender that can help you, an experienced mortgage broker may be able to search out the loan you need.
So is that all you should shop for is interest rates? If only it were that easy. You also need to shop loan costs, lender fees, points, prepayment penalties, loan terms, application fees, credit report fees, the cost of an appraisal, and many other costs. The easiest way to do this is to ask each lender for a “good-faith estimate.” This estimate will itemize all the charges inherent in getting your loan. This is where you compare apples to apples. If you need help comparing, ask your Realtor to explain the estimate to you.
Finally ” this is not the place to have a panic attack. Remember, my last column said that we will take the home-buying process step-by-step. So ” breathe in, breathe out. Inhale, exhale. Finish that cup of coffee, and (please) go get dressed before you call your lender and your Realtor.
Next time we’ll take a break from financing and talk about some house-hunting tips.
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