Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

4 Sure-Fire Steps For Finding The Lowest Mortgage Rate Possible

When I looked for my first mortgage, I was skeptical about rates that were too low. There had to be a catch when one mortgage had a rate that was a full percentage point less than another. It turns out there is a catch. Fees can differ by thousands of dollars.

That's why Texas Mortgage and Lending Commissioner Doug Foster recommends that home loan shoppers compare annual percentage rates instead of just the rate you see for the mortgage by itself. This rule applies to primary residences and investment properties alike.

The reason is the annual percentage rate accounts for the fees you're paying to secure the mortgage. This way you can figure out the real price difference between a mortgage with a low interest rate and high fees and a high interest rate and low fees.

So, the real question is: How do you find the lowest rate? Well, there are four sure-fire ways to find out. And here they are...

1. Learn Your Credit Score

Rates are often broken down by credit score groupings. Mortgage shoppers with excellent credit will usually get a better rate than someone with fair credit. You need to know what you have to offer in terms of credit risk. You can access your FICO score at MyFICO.com for $20.  (To access a free credit report without the score, go to AnnualCreditReport.com.) If you notice an error on your credit report, challenge it. A simple comment that removes a misreported item on your credit report can bump you up a credit category, potentially saving you thousands on your mortgage rate.

2. Find Your State's Average Rates 

You need a starting point before comparing interest rate offers.  Using national averages won't help you -- lenders in one state can offer dramatically different rates than in another state. You may be disappointed if your state has slightly higher rates than the national average. Try Bankrate's mortgage rate finder, where you can input your credit score and the percentage you can put down. 

3. Figure Out What You Have To Put Down 

It doesn't matter if the rate ends up lower when you have to pay more ahead of time for the mortgage. For instance, one lender may offer you a 4% rate, but you have to pay $6,000 in mortgage fees. Another lender may offer you $1,000 in fees with a 5% rate. If you have only $1,500 available to pay fees, don't abandon the 4% idea yet. The lender may roll the fees into the cost of the mortgage. If the APR is lower, you might get a better deal.

4. Find The 5 Best Rates

It doesn't matter whether you find rates from your local bank, the newspaper or online. The issue that causes the most problems for consumers is only talking to one lender, Foster says: "Whether they go to the Internet or newspaper, they absolutely need to talk to more than lender." That gets consumers the best rate, and if they don't like an answer one lender gives, they can ask another company to explain it. Also, deals such as rolling fees into the mortgage might be harder to secure if the lenders don't know they have competition. 

The Investing Answer: The best way to find a great deal is compare, compare, compare. When you've settled on a lender, read the document in its entirety and ask any remaining questions. If anything doesn't look right to you and the lender doesn't answer your questions properly, you may want to go with your second choice. Communication with a company you could have a relationship with for up to 30 years can be as important as the rate.