I’ve been in the mortgage banking business for over seven years now and have seen hundreds of loan files cross my desk. Here’s another 30 insider mortgage tips and tricks I’ve gleaned from my seven years of mortgage banking experience to get a lower rate, reduce closing costs, and eliminate qualifying hassles. Not all of these tips will apply to every loan scenario, but I’m sure most people will find at least a few useful things here.
This is the second post with 30 tips and tricks; if you didn’t catch the previous one, you can read it here.
30 Insider Mortgage Tips and Tricks to Get a Better Deal
1) Use the same company for your owners and lenders title insurance policies when buying a home. You may be able to get a nice discount if the same title insurer issues both policies versus buying them from separate companies.
2) Don’t shop based on APR alone. Contrary to what you may have heard, APR is not always the best way to determine which loan is the best deal. For one thing, the laws that govern it are unclear, so lenders often calculate it differently.
The biggest problem, however, is that it assumes you’ll be keeping the loan for the entire term of the mortgage – and very few people ever do that! Most people tend to keep their mortgages for 5 to 7 years then either refinance or sell the home. In such cases APR doesn’t truly measure the cost of the mortgage – not even close! Let me show you why.
The reason APR is flawed is that it amortizes your closing costs out over the total life of the loan. In other words, if you pay $5,000 in closing costs to get a 30-year mortgage, the APR calculation assumes an annual cost of $166.67 for closing costs ($5,000 divided by 30 years) plus the accrued interest on your loan balance.
But what if you don’t keep the loan 30 years? Herein lies the problem!
If you keep the loan only five years instead of 30, your annual cost now becomes $1,000 for closing costs ($5,000 in closing costs divided by 5 years) plus the accrued interest on the outstanding balance. Remember, closing costs are front-loaded – meaning they’re paid at loan closing. You paid interest and $5,000 in closing costs to borrow the money for just five years, which means your effective financing costs are much higher for each year than if you’d kept the loan for the full 30-year term.
If you shop just based on APR, you could end up paying a lot more for the loan than you need to. The best strategy is to shop based on rate and fees. If you’re considering keeping the loan long term, it may make sense to spend a little more on closing costs to get a lower rate. If you’re not planning to keep the loan more than 5 to 7 years, it usually makes more sense to take a slightly higher interest and let the lender cover the majority or all of your closing costs.
3) If you’re buying a home, use a real estate agent. They’re paid by the seller, so they’re free to you. Good real estate agents can help you through the process and serve as a great resource for finding a great home.
4) Make sure your listing agent takes great photos. I find it extremely annoying that some real estate agents are too lazy to take really great photos when listing their client’s property. Sellers pay listing agents 4% to 6% of the sales price to sell the home, so the least they can do is take great photos (or have them taken by a professional).
Most home shoppers start their home searches online, so you want to make sure your home looks as great as it can on the MLS. Personally, I think bad photos are enough of an infraction to fire the agent and find another one.
5) Don’t shop just for rate. You can get the lowest rate available, but it’s probably going to cost you the most in fees as well. The tradeoff in mortgage financing is always rate and fees; in other words, lower rates come with higher costs, higher rates come with lower costs. The trick is to shop for both rate and fees and strike the appropriate balance based on how long you plan to keep the loan. If you only plan to keep it a few years, a lower cost/higher rate option usually is better. If you plan to keep the loan long term, it can make sense to pay more in costs to get the lower rate, but be sure to do a good analysis to make sure it truly makes sense.
6) Don’t necessarily shop for “no cost” either. Again, it’s important to shop for both rate and fees and balance them appropriately based on the time frame you’re likely to keep the loan. If you’re going to keep the loan long term, it might make sense to spend a little more in costs to get a lower rate that can pay off huge in the long term.
A good loan officer should be able to structure a few different options with various rates and fees and figure out which one makes the most sense for how long you plan to keep the loan.
7) Don’t be the type that demands a rate quote without giving out any information. Yes, it can be a hassle to shop for a mortgage because the loan officer will likely barrage you with a variety of questions. Folks, it’s just the reality of the mortgage business. There are a lot of factors that influence the rate and fees for a mortgage or whether you even qualify at all. If you want a solid quote that the lender can deliver on, then you need to give them the information they need. Be forthcoming with the information requested.
8) Don’t be rude and demanding. If you’re serious about getting a loan done, it doesn’t pay for you to be difficult to deal with. If you have a good relationship with your loan officer and you recognize that getting the loan done is a mutually beneficial team effort, the loan officer is far more likely to work his tail off to keep you happy—which means you’re much more likely to get your loan done in a timely manner.
If a borrower gives me a hard time on the first phone call when I simply ask for his name and property address, I can only imagine what it’s going to be like dealing with him if speed bumps pop up in the process later. It’s just not worth the hassle and headache to deal with people like that.
9) Putting down 20% on a condo? I recommend scraping up another 5% if you can to get much better pricing. The 75% loan-to-value mark is a key pricing cutoff for condos and townhomes. In other words, a 25% down payment is going to get a much better deal than a 20% down payment when you’re buying a condo.
10) Putting down 20% on an investment property? Same deal as above; you’ll likely get a much better deal if you put down another 5%. If you’ve got the cash, it’s well worth it to come in with the bigger down payment.
11) Have high credit card balances that are hurting your credit scores? Consider asking your credit card issuers to raise your credit limit. If you can get your balances below 50% of the credit limit (30% is better), it could make a big difference in your credit scores. Big disclaimer here: only do this if you truly manage credit well. If this is going to just lead to more spending, don’t do it.
12) Ask your lender if they can do a rapid rescore. If some surprise credit issues come up during the application process, see if the lender can do a rapid rescore. Instead of waiting for 3 to 4 months for the credit bureaus to update their files so you can have a new credit report run, lenders can often rescore a credit report within days if you can provide the appropriate documentation that proves a particular credit issue has been resolved.
13) Putting down 3% on a conventional purchase loan? Try to scrape up another 2%. The mortgage insurance is much cheaper if you put down 5%.
14) Mortgage rates tend to move with the 10-year Treasury bond. Mortgage rates tend to move when the 10-year does as well, so if the 10-year yield is down hard, that might be a good day to request a rate lock. Having said this, I don’t recommend trying to pick bottoms in interest rates—the market can move against you just as easily as it can move in your favor. However, if you’re already working with a lender but haven’t locked your rate yet, the best days to lock are usually the ones where the 10-year yield has moved lower.
15) Owe a lot on your HELOC? If so, make sure it’s not reporting as a revolving account on your credit. If it is, and the amount you owe is more than 50% of the total credit limit, your credit scores could suffer. Make sure the lender holding your HELOC reports it as a mortgage, not a revolving account like credit cards.
16) If you have a collection account hurting your credit, you may be able to negotiate a payoff. Collection agencies buy old debts for pennies on the dollar, so you may be able to negotiate a payoff for far less than the amount actually owed. Just make sure you get an agreement in writing before you send a check.
17) If rates are on a continuous downtrend, it could be a good time to finance an investment property. When rates are on a steady downtrend, the margins in the rate sheet tend to widen, which makes it easier for lenders to absorb the pricing hits that can make closing costs really expensive for investment property deals. In one downtrending market I was able to refinance a $300,000 investment duplex with a conforming Fannie Mae loan for just a few thousand in closing costs. That’s a phenomenal deal for a 2-unit investment property.
18) Don’t believe everything you read about a lender on the internet. I once heard it said that you’re not popular if you don’t have at least something negative posted about you somewhere. Mortgages don’t always work out and angry consumers often take to the internet to vent their frustrations – sometimes with justification, sometimes not. If you’re researching a lender online, don’t be alarmed if there’s a few negative comments hear and there. If they’ve been in business for a long time, there’s bound to be complaints at some point. The lenders you should avoid are those that have a long history of complaints with a similar theme. If you see that, it might be better to shop with a different lender.
19) The crazy rate deals lenders advertise are usually not realistic for most people. The insanely low rates with no closing costs you see or hear advertised are thrown out there for one reason: to get you to pick up the phone and call. However, buried in the fine print you’ll discover that these deals are only applicable to borrowers with something like 60% loan-to-value, $417,000 loan amount, impounds, stellar credit scores, and are financing a single-family home they live in. If you fit within this narrow box, good for you! If you don’t, you’re probably not going to get a deal quite that good.
For more about the marketing gimmicks lenders use to get you to call, check out my post on it here.
20) Buying fixer properties to rent out? Consider financing your purchase and rehab with hard or private money instead of buying with cash. If the property is free and clear when you refinance into a permanent, long term bank loan from a traditional bank, it will be considered cash out and subject to much more restrictive rules and less favorable pricing. If you already have a loan on the property, then it can be considered a rate and term refinance and you’ll likely get a better deal.
21) Avoid balance transfers if you’re planning to apply for a mortgage. When you do a credit card balance transfer, the credit limit on the new account usually is set to the amount you transferred. This means the new card is “maxed out”, which can damage your credit scores.
22) Pull your own credit before you starting shopping. There have been more than a few times where I’ve pulled credit for a client and a surprise popped up that preventing them from getting a good deal. Pull your own credit ahead of time so you have a chance to correct any problems. You can do so for free once per year at AnnualCreditReport.com
23) Buying a condo with a FHA financing? Be sure the condo complex is FHA approved before you start paying for appraisals and inspections.
24) Make sure all rate quotes from different lenders assume the same rate lock period. Rate lock has a big impact on the pricing of a rate quote, so if one lender is using an unusually short rate lock in their numbers, their quote might look much better than it really is.
25) Lock for at least 45 days. Lending is tougher and more complicated today, so don’t go with a short rate lock to get the better pricing – unless you like risking rate lock extension fees. The only exception I would make is if you are a super clean, well qualified borrower and you already have an appraisal that is less than a month old. In that case, you might be able to get away with a 30-day rate lock, but check with your loan officer to be sure.
26) Gather up all your qualifying paperwork before you start shopping. This will enable you to move forward much faster once you’ve found a good deal. Delays in getting paperwork to your lender can be costly if your rate lock expires and you have to pay rate lock extension fees. For a good list of what the lender might ask for, check out my article here.
27) Prepare cash-to-close (for down payments or refinance balance pay downs) at least 90 days in advance. Lenders will always want to “source” and “season” the funds, which means they want to see the last 90 days worth of bank statements for the account you wish to use for your cash-to-close. Keep this money for at least 90 days in a quiet account that gets very little deposit activity to avoid the paperwork headache of documenting unidentified deposits.
28) Do your rate shopping within a span of a few days. Rates change every day, sometimes even a few times a day. You want to make sure all the rate quotes you receive are from the same time in the market.
29) Allow lenders to run your credit. Credit score makes a big difference to a rate quote, so you want to make sure lenders have the most accurate picture of your credit profile. The credit bureaus will treat the inquiries as one for scoring purposes as long as you do your shopping within a few weeks time.
30) Get a little extra cash from your refinance. Lenders often allow up to 2% of the loan amount or $2,000 at closing without the loan being considered cash out. Between this, the fact that you skip a payment when you refinance, and an escrow account refunds, you could get some significant extra cash out of your refinance without falling into the “cash out” category (and being subject to more stringent guidelines and less favorable pricing). Keep in mind that getting a little extra cash at closing from the loan could be subject to various limitations.
Check Back For More Tips
Be sure to check back again for more insider mortgage tips and information to get a better mortgage deal and minimize qualifying hassles. I’m always posting new information on this site to benefit you, so thank you for reading!