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Compared to more familiar products like cell phones or kitchen appliances, mortgages may seem pretty abstract. You can't view them in a window display or find them on a store shelf. But that doesn't mean you shouldn't shop for them!

Shopping for a mortgage is more involved than shopping for everyday items, so it can help to learn about the process before you dive in. Here, we'll cover how to shop around for a mortgage, and (just as importantly) why doing so matters.

Why should you shop for a mortgage?

Shopping for a mortgage is important because it can save you money. The interest rates lenders offer you can differ from each other by half a percentage point or more. While that might not sound like a lot, choosing a loan that's half a percentage point more expensive could cost you many thousands of dollars over the life of the mortgage.

For example, if you're looking at a 30-year fixed-rate loan for $180,000, a rate of 5.75% could mean you pay $20,327 more in interest than you would with a 5.25% rate.

Plus, shopping gives you more information about the mortgages that are out there. You then have enough context to decide if a loan is right for you.

How to shop for a mortgage

When you're shopping around for a mortgage, there are several steps to go through before making a decision. Let's walk through the process.

Take stock of your credit

Go to AnnualCreditReport.com and request a free copy of your credit report. Any errors on your report could cause lenders to turn you down for a mortgage or offer you a high interest rate, so you should make sure everything is correct before you shop for a home loan. If you find inaccuracies, reach out to the credit bureaus to get them fixed.

You can also talk to an HUD-approved housing counselor or a non-profit credit counselor for help with reading your report or flagging errors.

Collect your financial information

Make sure all your financial information is in one place so you can easily access it when you fill out forms for lenders.

You should have a current photo ID and your Social Security number. You'll also need your federal income tax returns and W-2s from the last two years, plus recent bank statements and pay stubs. 

If you're self-employed, you might need additional proof of steady income from your business, like business bank account records and earnings statements going back a few years.

Explore your options

Now you're all set to look for loans. You can get in touch with lenders yourself, work with a mortgage broker, or combine both of these approaches.

Finding lenders

Searching for lenders yourself lets you avoid paying a broker's fee. And it gives you more control over the process than outsourcing it to someone else.

Still, it can be time-consuming to look for lenders and contact them one by one, and it takes some effort to repeatedly fill out applications with different companies.

You could start with banks and credit unions where you have accounts or ask people you trust for recommendations. To find online lenders, you can browse loan comparison sites like LendingTree or Own Up, or search for "Best Mortgage Lenders" lists.

You'll want to do some research on lenders you're not familiar with to make sure they're reputable. Visit the Better Business Bureau page to see the lender's rating, and check review sites like Trustpilot to find out if other home buyers had good experiences.

Using a broker

A mortgage broker typically works with multiple lenders and can save you some time by presenting you with information on a few loans at once. Plus, a broker might be able to find you a better deal than you could get on your own. 

On the other hand, you might have to pay a fee worth 1% to 2% of the amount you're borrowing if a broker arranges your loan. And there's no guarantee that the broker will find the best loan that's available.

You can find brokers by asking family and friends for recommendations, or you can search online and select brokers who have consistently good reviews.

Whether you decide to contact lenders, use a broker, or both, it's best to put together a list of different loan options so you can choose between them. For example, even if the first broker you talk to offers you a loan that looks great, you still want to check with some other brokers or ask a few lenders for information.

Get loan estimates

Ask the lenders or brokers for loan estimates, which are standardized forms that show you key details about a loan like the interest rate, monthly payment, loan term, and points or lender credits

A loan estimate doesn't tell you if you'll be approved for a loan. But it lets you know the loan's characteristics so you can decide if you want to go forward with an application.

You may have to pay a fee of about $30 or less for each loan estimate you request. Given how much money is at stake when you shop for a mortgage, this small expense is reasonable.

Ask for loan estimates for similar loans so you can compare them easily. For example, if you request an estimate for a 30-year fixed-rate mortgage with 1.25 points from one lender, ask the next lender about an estimate for a loan with those same features.

You don't need to show written proof of income or other documents when you get a loan estimate, but it's still best to give the lender as much information as you have. If the lender comes across surprises later on in your application, they might revise your estimate. 

Compare loans

Once you've gathered some loan estimates, look at them side-by-side. Pay attention to the interest rate, the monthly payment, and closing costs. Check out the Comparisons section on the third page of each estimate, which tells you how much you'll pay in principal, interest, and other costs over the first five years of the loan. 

A loan calculator can help you dig deeper into the differences between loans. Plug in the numbers from two of your estimates to see how total costs for the loans compare over various lengths of time. You can also see if one loan would allow you to build equity faster than another.

Another handy tool is the interest rate explorer from the Consumer Financial Protection Bureau, which shows the rates lenders are currently offering people in your state. Enter some details like your credit score and the loan amount you're interested in to view typical rates. Estimates that offer rates on the lower end of the range you see here might be worth considering.  

Talk to your advisors

Mortgages are complex, and it's difficult to absorb everything by yourself. You can ask loan officers questions — but keep in mind that they're trying to sell a product. 

You'll benefit from talking to an expert who can provide their unbiased opinion about your loan options. Consult with an attorney, a qualified financial advisor, an HUD-approved housing counselor, or a non-profit credit counselor, and show them your loan estimates.

You could also get input from friends or family members you trust if they have experience buying a home.

Negotiate

You can try negotiating for a better deal on a mortgage, although you should be aware that the lender or broker might not be willing to bargain with you. It may help your case if you can show a loan estimate from a competitor with a better rate or lower lender fees.

Taxes and fees imposed by the government can't be negotiated, though. And a lender probably won't negotiate fees going to other service providers like appraisers. 

When is it time to make your choice?

How long to shop is up to you, but these are some good reasons to start wrapping up your search:

  • The loan estimate you prefer is about to expire: Loan estimates are only valid for a set time, which could be just 10 days after they're issued. If you've been offered a rate you're happy with, you want to act while it's still available.
  • You need to close on a house soon: If time is running out, you might not be able to keep deliberating.
  • It's been 45 days since you requested your first loan estimate: Requesting loan estimates within a 45-day time period won't hurt your credit because your credit report shows that as just one inquiry. But taking more time to shop could put a dent in your credit score.
  • Lenders are offering you loans that are very similar to previous offers: If you've already received a bunch of estimates and each additional one looks a lot like the others, that's a sign that you've collected as many data points as you need. Getting even more estimates probably won't tell you anything new at this point.

Proceeding with a loan application

Once you've made your decision and chosen a loan, call the lender to tell them you want to apply. If they gave you multiple estimates, make sure you specify which one you're interested in. They'll give you a full application to fill out and let you know what documents you need to share with them.

Does it ever make sense not to mortgage shop?

Shopping around before picking a loan is standard advice. But almost half of borrowers don't compare different options before they choose a mortgage. So is it really necessary?

In short, yes. Shopping around gives you a clearer picture of your options and lets you feel confident that you're selecting a good loan for you, given the available alternatives. There's probably never going to be a case where you wouldn't want to be well-informed before making a huge financial decision like signing on a mortgage.

That said, there are some situations where you might not have a lot of time to shop. For example, if you're moving to live closer to a parent who's dealing with poor health and they've got a big surgery coming up in three weeks, mortgage shopping and reading the fine print on loan offers might be the furthest thing from your mind. 

At times like this, you might need to limit your search. For example, you could call a handful of lenders and just compare offers from the first three that respond. Or, if shopping around is going to be impossible for you right now, it might be more practical to find a place to rent and put off buying a home until the crisis has passed.

Shopping around for a mortgage may feel like a chore, but don't be tempted to skip it. When you're about to make a big financial decision, having several options to consider is well worth the effort.

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