Shopping different lenders for a better interest rate?

Question

I'm currently getting 4.75% interest rate with 20% down on a rental property. For conventional mortgages, is it recommended to shop around with different lenders to try and get a better interest rate or do they all pretty much offer the same rates?

Scott Behrens · Answer

I just create a spreadsheet (I draw a crosshatch grid on paper) and get the answers to several questions, comparing them side by side. After a few calls, as Mindy said, usually there is a clear winner. Questions I ask about the best loan option they can give me:

Length of loan & amortization length, Highest LTV allowed, Interest Rate, Closing Costs, Origination cost, can I opt out of escrow?, who will service the loan and do they do a good job, are the banks appraisers good? and ask what else would be good for you to know.

Also keep in mind that several of these things are inversely related. You can generally pay more or less in origination/closing costs and it will effect your interest rate. You can get a good feel for it by asking them what the rate would be if you paid no origination, or no closing costs at all. If there is escrow, ask if the rate or costs go up if you didn't do escrow.

Also, the length of time they lock the interest rate will vary and make a difference as well but I usually let them decide (figuring they know their system best) and just compare the end results.

Best of luck.

Mindy Jensen · Answer

@Brandon Low I bought the 1/8 of a point to bring my regular guy's loan to the same interest rate as the competitor. Even paying the extra upfront, I saved a ton on closing costs.

I do see people paying for points, but not as frequently as in the past. I think in the 70s and 80s, buying points was fairly common. But that was also when interest rates were in the double digits.

I would recommend getting several quotes for your mortgage, and then comparing them side by side. Usually, a clear winner will emerge. And there is no shortage of places to get a mortgage. Try local banks, credit unions, and mortgage brokers. PM me for the name of my guy. I make nothing off any referrals, I just like to send him business for all the money he has saved me over the years.

Brandon Low · Answer

@Scott Behrens- can you explain more on how you avoid escrow?

@Mindy Jensen- is it common practice to try and negotiate your interest rate and/or closing costs down?

I paid 0 points, but my closing costs were around $4,000. Does that seem normal?

Mindy Jensen · Answer

Absolutely keep shopping around. I have a guy that I have used for my last 7 purchases. I cannot find anyone to beat his rates, but I still look, even after 7 successful closings with him. You never know when you will find a better deal. Why pay more than you have to?

But don't just look at the rates, look at their closing costs as well. On my last deal, I actually found someone 1/8 of a point less, but closing costs were triple! We bought 1/8 point to even them up and saved a ton of money on the closing costs.

Scott Behrens · Answer

You'll find different rates/terms. I would definitely shop around. I personally like to avoid escrow as well. Its add up quickly with several properties.