Can I Do Better?

QUESTION:

How do I know I'm getting the best rate on my mortgage?

ANSWER:

Comparing rates for loan programs can be difficult because rates are often expressed as a combination of rates and points, say 4.5 percent plus 2 points or 4.75 percent plus 1 point. To get around this problem, always ask for quotes at "par" - that is, rates with no points.

One point is equal to 1 percent of the loan amount and is paid at closing; 1 point for a $100,000 loan equals $1,000. Once this money is paid it's gone forever, so points can be especially costly in percentage terms when loans are quickly paid off because of a home sale or refinancing.

Some other, er, pointers:

Compare rates for similar programs - i.e., FHA financing from Lender Smith versus FHA financing from Lender Jones.

If you have a good credit history you'll get a better rate than someone with a bad history. Protect yourself and pay all bills on time and in full.

Always get a Good Faith Estimate of Closing Costs from lenders, a form developed by HUD and introduced in 2010. Do not accept worksheets, fancy forms or verbal estimates as substitutes. Why? You can hold a lender to the numbers in a GFE and those numbers are shown on the HUD-1 form used to close the sale, so it's easy to check if you got what was promised.

Lastly, shop around. Just like new car dealers, lenders today are largely selling the same product. A VA loan is a VA loan. FHA, VA and conventional mortgages essentially are commodities, standardized items with standardized terms. The only question is how much you'll pay.

As to finding that elusive "best" rate, think of it as a moving target, something that changes constantly as the mortgage market moves up and down. Numbers are important, but consider paying a somewhat higher rate if the lender will pay closing costs.