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Understanding rate shopping can save you tens of thousands of dollars. Yes, you read that correctly! That’s why so many home buyers take the extra time to shop around before deciding on a lender to work with. 

We’ll use this article to help you understand the rate shopping world and why it’s worth your time and energy. 

Rate Shopping Basics

Let’s start by talking about the basics. What is rate shopping? 

The short answer is it’s the process of talking to multiple lenders to get the best rate possible.You know that even a small interest rate change can lead to a lot of saved money over time, so you realize it’s worth the upfront work to shop around. 

Let’s say you’re buying a $300,000 house. You have $60K to put down, so you’re borrowing $240K and your interest rate is 3.8%. After 30 years of paying the loan, you’ll end up paying $505,000 for the home. 

Compare that to the same loan but with an interest rate of 3.3%. Now you’re expected to pay about $480,000 over the next 30 years – a full $25,000 less!

Is a few extra hours of work worth $25,000 to you? 

Understanding Rate Shopping and Hard Credit Checks

One thing you should know about is that this process will affect your credit. When you talk to a lender about a mortgage and they do a hard credit check, it will lower your credit score by 5 points or less. 

While that’s unfortunate, there is some good news here – only one hard credit check will be counted against your score every 14 days. 

What does that mean for you? It means if you talk to 4 lenders and they all run an inquiry within that 14 day window, you only get dinged once. 

Why? Essentially you’re given a break. Everyone knows that it’s good to shop for low mortgage rates, so you’re given liberty to do so without trashing your credit score – whether it was created by your FICO Score or VantageScore. 

What are the Steps to Mortgage Rate Shopping?

Let’s wrap up by outlining the main steps you’ll want to complete as part of this process. 

Step 1: Check your credit score and history. Make sure everything is correct and you don’t have anything wrong. You’re looking for things like a credit card you don’t recognize, or making sure the loans you’ve paid off show up as a zero balance. 

Step 2: Do some research. You don’t want to just check out any lender! You want to work with an award-winning mortgage lender since they’ll be able to offer you great rates and the experience to give great customer service. 

Step 3: Determine what kind of mortgage you want. Are you looking for a 30 year fixed mortgage where you don’t buy any points? Maybe you’re thinking about getting a VA loan? This step is very important because you need to compare apples to apples. If you are comparing two different loans to each other, the rate shopping doesn’t work.

If you aren’t sure what kind of loan is best for you, send us an email and we’ll help you navigate your options. 

Step 4: Reach out to the lenders. There’s a good chance you’ll end up on the phone with one of their reps, as some things are done more easily over the phone versus emailing back and forth. 

Step 5: Choose the lender you want to work with. 

That’s it! 

Conclusion

Home buyers that understand rate shopping know it can save them a lot of money over time. Yes it takes a little more work, but it’s worth it! 

If you have any other questions about this process – or any part of getting a mortgage – give us a call at 1-855-644-LOAN. We will help you every step of the way.