I took a leap of faith and bought our home, our first home. In a series of posts I’ll write about the buying experience, the lessons learned and best practices. in this article I am going to write about mortgage loan shopping, and how did I shopped for mortgage loan comparing 10 different banks, sitting in my office cubicle.
I heard stories on extensive and hectic mortgage shopping that involves going around banks, making phone calls to bankers and what not. Even my colleagues had to go through hours and hours of research and travel to get the best mortgage.
Well, my method searching only lasted for 1 hour. I made no calls and received 10 calls from bankers on my cell phone.
When our offer for a lovely 4 bed room south Florida home was accepted, it was late Sunday night.
Out immediate next job was to get a home loan. Time for mortgage shopping!
How I prepared for Mortgage Loan Shopping
The other thing that pre-approval process taught me was the documentation that was required at the time of actual loan application. I stated before renting was economically better decision than home buying. Well that financial decision and equation started turning as we love to stay in a big house, we love to decorate and renovate as per our choice, we wanted to garden. All of these were not possible in our rental condo.
Also, there was a social pressure as all of our friends and relatives were already a home owner, even the resources I manage were home owners. If you can understand what I mean…
All of these led us to start the process of home buying. I’ll talk more about that in my next post on our nest post on home buying experience.
I read a particularly useful article, putting tips for first time home buyers. I followed each and every points that they mentioned. I looked up my credit report and score, I consolidated all my cash in to one account. I analyzed and over analyzed our income and expenditure to determine how much loan we could afford and how much down payment we could make.
In our area, to make an offer, we need pre-approval letter. Our Realtor got us the pre-approval from a local credit union. In that process I came know my exact credit score from all three credit bureaus. I had an average score of 796. Per our calculation we could afford 20% down payment. That would avoid mortgage insurance fee. We also decided on 30 year fixed mortgage to go for.
Data you should have handy before you start shopping for mortgage
- Prevailing rate in market
- What is your credit score
- How much loan you can afford to pay, consider exact amount of monthly hidden cost (including tax, HOA, Insurance, utility bills)
- How much down payment you can afford
- What type of mortgage loan most suited to your need (ARM, 15 years, 30 years, etc)
- How soon you need to close the house (talk to your Realtor about the date seller wants)
Mortgage insurance, to me, is absolutely unnecessary and avoidable spend. We also made sure we had enough money for closing cost and home repair costs, including upgrades.
Sunday night, the night our offer was accepted, I did a research on rates at Zillow market place. I read articles on effective mortgage shopping. MSN has a good write-up. Bankrate put up a few good points. Forbes article on three pitfalls helped us. Most of these advice suggested spending time while shopping and going out to talk to loan officers directly. I also went through the federal govt. advice for mortgage shopping.
The lowest rate we were getting(July 2014) was 4.05%. I noted down 5 cheapest rates and their contact numbers, for the next day.
I didn’t want to make so many phone calls. I wanted bankers to come to me. I had too much work to be done to visit brick and mortar banks. I knew what I was going to do the next morning.
I bank with Chase and Bank of America. I already checked in their rates, through their internet banking sites. Their rate quote for an excellent credit was way higher than those I received on Zillow. So, I striked them off of my list
How exactly I did shop for mortgage loan
On Monday morning, after my initial round of meetings, I went to a conference room which I booked before. I went in to ‘do not disturb’ mode then opened Lending tree and Credit Sesame accounts and put it my information.
You do not need a Lending Tree account to be able to shop. You need to provide few basic information and obvious your social security number. I was already a Credit Sesame user so I just had to login and click on mortgage shopping option.
Credit Sesame came up with 2 options, as opposed to Zillow’s 100’s of bankers. Which was odd. But I latter realized that Credit Sesame picked the lenders that had tie up with them and offered loans in our county. remember, to see quotes via credit Sesame, there will not be a credit check till the time you pick us a lender and contact them directly.
Same with Lending tree, but there’s a huge difference. Lending Tree is not a lender. They are like the travel sites such as, Cheap Tickets, Orbits, etc. The are the middle men.
Lending Tree asked me for my state and city, home type, purchase price and down payment amount, they also asked my social security number and option to select my credit score range (good, bad, excellent).
Once I submit, they forwarded my requests to 5 different lenders instantaneously. My phone started ringing almost by the time I finished clicking. Previously I read user reviews of lending Tree. I was prepared for storm of phone calls.
By the time I finished talking with the first banker that called me, I had 6 missed calls and 4 voice memos. They called again and again, till I picked. I Talked to them calmly. All these banks were having my social security numbers but, they couldn’t use it unless my verbal permission. If they did people would become millionaire by suing them and they must have folded their shops by now.
I got calls from Discover Home loans, West Star Mortgage, Quicken Loans, Wells Fargo and a Local mortgage company called Paramount Mortgage. I later discovered an email from Lending tree about these 5 companies. But by that time I read that email I was already done talking to all 5 of ’em.
I found this Federal Trade Commission guide for mortgage shopping very useful and followed them word by word. Especially go through the section “Obtain All Important Cost Information”, in the guide. You should have it handy when it’s your turn to compare mortgages.
Based on online reviews of Lending Tree, people were not happy with barrage of phone calls. But, believe me, they were all cordial and nice people. After all they are mortgage bankers. Trying to take few hundred thousand dollars from you, not a mere $50 selling one piece of merchandise.
They are the smartest sellers of this country. They will try their level best to convince you why they are the best in business. Believe me with my Asian Indian accent I managed them well and didn’t reveal much information and didn’t allow them to run a credit check.
You only allow a few short listed lenders to run a credit check on you. All 5 of them gave me a “good faith estimate” on phone and through email. I compared their rates, their fees and estimated closing dates.
If any of these information is missing in your good faith estimate, ask for it.
I called the banks I noted from Zillow market place. Soon, I had 10 quotes siting on my table. I sort listed two, both were from Lending Tree, WestStar Mortgage and Discover Home Loan.
West Star was offering 4.125% APR loan. West star had appraisal fee, Credit report fee and discount rate point fee of $1308.
Discover quoted 4.2% APR initially with over $1,900 of fees, mainly loan originator fee and appraisal fee.
I conducted a healthy competition between the two. I sent Discover the quote I got from Weststar, within few hours Discover came back with a counter offer. They offered me the same APR of 4.125 and waived all fees except appraisal and credit report fee. Upon re negotiation they gave an account credit to waive that fee off as well.
I sent Discover’s revised quote to Weststar to match or beat Discover. Unfortunately Weststar gave up and Discover Home Loans got my loan. Discover also guaranteed earliest closing date.
How my credit score affected due to mortgage Loan shopping?
As explained in this article beautifully, smart mortgage shopping doesn’t affect credit score much. Credit reporting agencies coded mortgage shopping credit inquiries in such a way that multiple credit inquiries within a short span doesn’t have collateral damage on your credit score. They know you are shopping for loan, not exactly borrowing money from all of them.
yes your score will be affected but only once in 30 days. I will report very soon with the actual drop in my credit score. As soon as I get the number, I’ll update it here.
During the mortgage underwriting process, I was asked to explain as much as 7 hard inquiries in my credit report. They wanted to know whether I was taking multiple mortgages. I answered them satisfactorily. All those 7 hard inquiries will constitute as only one loan inquiry in credit report. They’ll show up no doubt but the drop in score will be equivalent to a drop with one hard inquiry.
In a nut shell, you have 30 days to shop for mortgage, else your credit score will take more beating. Within 30 days you can shop at as many banks as you wish. Don’t worry about your score much.
As per this Equifax article, they specifically asked for three behaviors, while you shop for mortgage loan
- Shop for same amount of loan everywhere
- Do not combine any other type of loan, do not combine mortgage with auto loan or revolving credit (credit card)
- Even though shopping period is 30 days, try to finish shopping as soon as possible
What went right for us in Mortgage Loan Shopping
There are numerous benefits that we got from this way of mortgage shopping.
- First and foremost, the total time to get the best loan that was available on that day was exceptionally less. Literally I shopped for only one hour. We shopped for on day 1, then chose the banker on day 2, just because I took the counter offer. Else our mortgage process could have started on first day itself. Faster process means we can enter in to our dream house (the picture above is our actual home!) sooner
- No manual work, it was nothing but another day in office. I stayed one hour more at office to finish my work for the day though.
- No wage loss due to running around the banks for home loans. No hard negotiations, no handshake. Entire shopping process was done online and on phone. Overall, less headache for us.
- When you are in front of your computer and printouts, it helps in visualizing and comparing quotes, including fees and rates. You are aware of current market rates and also any potential competitor’s rate.
- You can create a competition and secure least rate. All lenders sent me a soft (pdf) copy of the good faith estimate. Once you get the quote, you can create a healthy competition between lenders to match and surpass each other’s rates. In my case, although Discover was second best initially, they competed and went ahead to secure the loan. I became the ultimate winner for getting a lowest rate with no fee.
What could have gone wrong for us in Mortgage Loan Shopping
Barrage of phone calls could be annoying. But if you think you are in a market (have you seen the markets in less developed countries?) to buy vegetables and all the shop owners asking you to visit their shop at the top of their voices. It’s the same feeling. be calm, be steady. Don’t give permission to run a credit check before you short list base don good faith estimate.
When you need to lock the rate, they’ll have to run credit check. I did lock rate with West Star too soon and they ran credit check, I could have avoided that and only could have let Discover run credit check on me. After all it was my first time experience.
This is very less time to shop for mortgage, if you’re not prepared and familiar with the concepts. You could sign a document without reading it fully or could give consent to something you didn’t listen to properly. Here’s step by step mortgage process, every home buyer should be familiar with.
There was a big miss one my part. Once Weststar declined to better Discover’s offer. I could have taken that quote to all other lenders whom I rejected in round 1. That would probably have brought my rates down. Now I regret not spending an hour more.
Overall, that was my story. How do you feel about it? I was well prepared and things went on smoothly. All the best for your shopping. May you get the best deal!