6 steps to get the best mortgage rate

If you’re in the market for a mortgage, chances are you’ve been instructed to shop around for the best rates. But just because you’ve been told to shop around doesn’t mean you know how.

First, you’ll need to contact a lender to get your credit scores. Craig March, a personal mortgage consultant with Inlanta Mortgage in Janesville, Wis., says you should share your credit scores with other lenders rather than letting each one you contact pull your credit history, because multiple inquiries could lower your scores.

“There are so many different credit score models that the score you see as a consumer may not be the same as the one a mortgage lender sees, so it’s important to get your score from a lender,” says Mark Richards, a senior mortgage loan officer for TD Bank in Washington, D.C.

Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C., says every borrower must be prepared to answer the following questions before a lender can provide an accurate mortgage rate quote:

How large is your down payment? Interest rates vary according to your loan-to-value ratio.
Are you buying a single family home or a condominium? Martucci says a borrower purchasing a condominium with a loan-to-value ratio above 75% will pay a one-quarter percentage point higher interest rate.
Are you refinancing or purchasing? Interest rates may be higher on a refinance, especially if you are taking out cash, which could raise your rate by one-eighth of a percentage point.
If you intend to waive escrow and pay your taxes and insurance yourself, your mortgage rate could be one-eighth of one percentage point higher because that’s considered a riskier loan, says Martucci.

Your plan for the best rates

No. 1: Establish a baseline. Get a referral from someone you trust and contact the recommended lender to obtain your credit scores and discuss your loan options. Your lender can help you compare Federal Housing Administration and conventional financing, as well as various loan terms, so you can make an informed decision on which loan program and terms you want before you contact other lenders

No. 2: Contact a mix of financial institutions. Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution. For example, some lenders who are eager to generate more purchase loans might offer the best mortgage rates for homebuyers but not for refinancing homeowners, says Martucci. Sometimes a credit union or bank will introduce a new loan product and offer better mortgage rates in order to entice borrowers, says March.

“It’s best to diversify and try a mix of places, such as a direct lender, a regional bank, a credit union, a community bank and a national bank,” says March.

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