Shopping for an Interest Rate
I'll put forward a basic strategy to find the best rate, but let me start right off the bat, that the most important thing that you're looking for is not a rate, but a seasoned professional who will GET THE LOAN DONE. A great rate that is offered, but ultimately not delivered, isn't worth anything, so I recommend getting personal with with folks to get rates. Yes, that means I'm not going to suggest that you just enter in some basic information in to a loan hunting web site. That's easy, and may work out for you, but in this environment, I would really work with someone who knew what they were doing AND could get you a great rate.
Types of Interest Rate Providers
Basically, you're looking at Four types of providers. Large Banks, Small Banks, Credit Unions, and Mortgage Brokers. They all make money different ways.
- Large banks try to make money with economies of scale, by offering more services under one roof, they hope they can mange more of your money under their roof, which makes their business model possible. Large banks also can have the clout to offer "unique" programs that other vendors can't match.
- Small Banks try to make money by making use of inefficiencies in the market. When large banks get squeeze by the economy or other market forces, smaller banks are better insulated from national market swings (generally), and can offer programs that are highly individualized, which may help non-standard borrowers.
- Credit Unions share much of the aspects of smaller banks, but typically do less advertising, and have smaller staffs. This means they have less overhead, which can mean better rates, but generally also means that your customer experience may not be what it would be at a more "traditional" bank.
- Mortgage Brokers have deals in place with banks and occasionally private financing as well. In exchange for handling much of the processing, they get discounts from the banks but they add a fee for their services. It doesn't quite even out, but since the mortgage brokers have access to many banks, they can "shop" your loan for you, and when rates are in flux (as they always seem to be) it's easier for them to find the "best rate today" instead of you needing to do it. They'll save you time for sure, and may save you money, and should always be part of your searching.
Finding the best Interest Rate Available
OK, so, now we know who the players are. How do we find a loan?
- Referrals. Ask people who've had to get a loan, what problems their loan provider overcame, and the customer service provided. Pay close attention to what type of provider they are.
- Pick Up the Phone. If you referral network yielded a big bank loan officer, and a mortgage broker, time to call a small bank and a local credit union. Get some contacts there as well. Ideally, you'll have someone from each "pool" of lending. If you call Bank of America, and then Citibank, well, I don't know that you're really shopping around, that's really the same pool. Also, remember if you're calling around, you won't be able to know how "good" they are. So ask good questions like, "how long have you been a loan officer" and "how long is a rate-lock good for" and "how much are typical fees".
- Understand your credit scores, debt, and income pictures. To truly get a rate, you'll need to provide solid information to each one of your contacts. (IMHO, please let them know it's a competitive situation, no need for secrets!). I recommend letting one person run your credit, and then using the scores that pop up as information for the other folks. You don't have to let each one run your credit if you can provide them recent scores. Similarly, debt and income can be figured out as well. This information will allow the loan reps to determine a lender profile, for which they will be able to offer you a program. Each program* has a rate. Voila.
It's a little more complicated than that, but that should get you started.
* Note each program also has fees associated with it. So ask! Saving an eight of a point in the interest rate but paying an extra three or four thousand dollars at closing may not be what you want.
