It can be frustrating. You see all those advertisements for fantastically low mortgage rates, but when you go shopping, the offers you get are higher.

What can you do to improve the quality of the offers that you get from mortgage lenders?

  • More Offers = Better Offers

    Don't give up after calling one lender because you're disappointed in its mortgage quote. A Stanford University study showed that getting at least four mortgage quotes saves borrowers a median $2,664 on a $200,000 mortgage! You can get on the phone, send emails or use a free service like LendingTree to get multiple quotes from competing mortgage lenders.
  • Try Self Improvement

    Today, Fannie Mae and Freddie Mac (their guidelines govern 76 percent of mortgages today) employ risk-based pricing, which means people with lower credit scores, smaller down payments or certain loan features are going to pay more – in some cases much more – than borrowers with stronger applications. Work with your loan officer to see how you can improve your profile – sometimes adding a mere handful of points to your credit score or coming up with another five percent down can save you thousands of dollars in risk-based surcharges.
  • Consider Government Loans

    Government mortgage programs – FHA, VA and Rural Housing loans – do not impose risk-based pricing. However, VA and USDA charge funding fees and FHA charges mortgage insurance premiums. Despite this, for people with smaller down payments and a few credit blemishes, these loans may cost less than their conventional (non-government) counterparts. You owe it to yourself to check them out.
  • Be Creative

    There's more than one way to lower your mortgage rate. For example, community mortgages require only three percent down and their mortgage insurance is lower. If you qualify (they are for people with low-to-moderate incomes) you'd pay less than you would with an FHA loan. If your mortgage amount just exceeds the limit for conforming mortgages, avoid higher jumbo mortgage rate by getting a first mortgage at the conforming loan limit and a second mortgage for the rest. You can also lower your mortgage rate by choosing a term other than the standard 30 years. A 15-year loan gets you a rate that's .5 - .75 percent lower than a comparable 30-year loan. A 5/1 hybrid loan, which is a 30-year mortgage with a rate that's fixed for five years, may get you a rate that's about one percent lower than that of 30-year fixed loans.
  • Better Might Be Higher

    Finally, you may be able to get a "better" mortgage rate by choosing a higher rate with lower fees. When lenders advertise their rates, they like to quote the lowest ones possible. However, that rock-bottom rate might not be the lowest cost choice for you. For example, if a $100,000, 80 percent mortgage with a 3.5 percent advertised rate has an APR of 3.918 percent, that loan's costs come to about five percent of the loan amount! What if you could get a loan with a 3.875 percent rate and pay no fees? Your monthly payment would be about $20 more, but you'd save $5,000 upfront. It would take over 20 years to recoup the cost of the more expensive loan. In that case, the loan with the higher rate is probably the "better" mortgage.