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3 steps to save thousands on your next mortgage

No shopping you'll ever undertake is more important than mortgage shopping. Here's how to do it right.

By Stacy Johnson Apr 6, 2011 11:26AM

This post comes from Brandon Ballenger at partner site Money Talks News.

 

Shopping for a house is fun. Shopping for a mortgage, not so much, but it warrants just as much of your attention.

If you wouldn't consider paying an extra $50,000 for a house, why would you accept a mortgage rate that's one percentage point higher and could cost $50,000 more over the life of the loan?

 

However, too few people try to negotiate mortgage rates, maybe because they just don't know how. Watch the video below to hear Stacy Johnson explain the process, then read on the other side for more. 

Want to get the best possible loan at the lowest possible cost? Follow these three steps:

 

Get your credit in shape. Your credit score affects what rates you'll get on loans, so you'll want it to be as high as possible. If you don't know where you stand, check out "How to get a free FICO score" instead of paying a reporting agency for one.

And remember, your credit score is nothing more than a number reflecting your credit history, and that's available free once a year from each major reporting company: Equifax, Experian, and TransUnion. Go to AnnualCreditReport.com to get yours, and if you stagger the different companies' reports four months apart, you can check your credit for mistakes and inquiries three times a year for free.

 

Review your report for any errors or negative information. Ask for corrections on errors and write companies asking them to remove the negatives. It won't always work, but it doesn't cost a thing to try. For in-depth info, including how to format letters, check out "3 steps to improve your credit history."

 

Understanding how your score is calculated and what you can do to raise it are also important. We covered that in "3 tips to raise your credit score, fast." One thing not to do is pay for credit repair. Nobody can change your credit overnight, and most steps worth taking you can do yourself.

 

But the truth is that raising your credit score requires time and patience. Homebuyer Jeff Pharr, in the video above, spent more than a year polishing his credit. Time well spent? Absolutely. From the front page of credit score creator MyFICO.com: "A 100-point difference in your FICO score could mean over $40,000 extra in interest payments over the life of a 30-year mortgage on a $300,000 home loan."

 

Search for rates and get the facts on fees. Money Talks News chief Stacy Johnson refinanced his mortgage a couple years ago at a time when the average rate was 5%. He got 4.75% and paid only about $600 in fees, far less than most companies were demanding.

How'd he do it? Stacy started by going online and looking at mortgage shopping sites. (Many websites have them, including MSN Money and Money Talks News.) Then he picked four lenders with the lowest annual percentage rate or APR.

 

Next, he called those top lenders, confirmed their rates, and asked in detail about their fees. He made a breakdown of those numbers on an Excel spreadsheet. He also requested a good-faith estimate, which confirmed in writing what they told him over the phone and allowed him to check their numbers at his leisure.

 

Send the lenders to war. The next thing Stacy did was the easiest part, and after your hard work you'll enjoy it too: Harness the power of competition.

 

Armed with the rates and fees from four lenders, Stacy called them individually and told them exactly how their competitors were besting them. If a lender quoted 5% APR, he pointed out that another guy had 4.75%. An $800 processing fee? No way -- the competition wasn't charging anything for that.

 

Once you talk a lender down to something reasonable, sign on the dotted line. But make sure the final settlement statement reflects everything you bargained for.

As mentioned in the video above, being preapproved (not just prequalified) is critical before you see your first house. "Preapproved" means your lender has already agreed to lend you the money, providing the house appraises properly. That's as good as having a suitcase full of cash in the car with you, because it allows you to pounce the instant you find what you're looking for.

 

More from Money Talks News and MSN Money:

1Comment
Apr 7, 2011 5:52AM
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After dealing with several lenders in Austin, I finally called "Mortgage Refinance 123".I am an agent, and have several relationships in the mortgage business including major banks. I wish I would have been introduced to 123 sooner. They got solution to lower your interest

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