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By timestaff
May 27, 2014

Like buying any product, getting the best mortgage rate requires doing some homework. But it’s not as simple as shopping for a big-screen TV. You can research online and compare prices (rates)—but only up to a point. The actual rate you’ll pay depends on your credit score and other factors, like whether you’re buying a single-family home or a condo.

So shop around, but then check the fine print. Start at websites such as Bankrate and HSH, which allow you to search a database of rates submitted by lenders in your zip code. Then call a mix of national banks and local credit unions, especially if you’re an account holder. Some offer discounts to customers.

If doing the legwork yourself seems daunting, you can try a mortgage broker, who works with multiple lenders and can often find a better rate than you would on your own. The broker receives a fee for bringing in the business, which may be passed on to you in the closing costs or a higher interest rate.

Calculator: Which is better, fixed or adjustable-rate mortgage?

Speaking of fees, make sure to ask the lender for a full slate of anticipated charges. Fees for application, loan processing, appraisal and other closing costs can total as much as 5% of the loan amount, making that seemingly low rate a lot less attractive.

Once you apply, you’ll receive what’s called a Good Faith Estimate (GFE) within three business days. You can’t be charged for anything except a credit report fee before you tell the lender you intend to proceed. Keith Gumbinger of HSH suggests asking lenders if they’ll provide you with the GFE even before you formally apply for a loan. “If you can get a few,” he says, “you can really compare.”

The easiest way to lower your rate is to pay discount points up front. A point is equal to 1% of the loan amount. To determine whether paying points makes sense, weigh the cost of the points ($2,000 per point on a $200,000 loan) against the savings you’ll reap from the lower interest rate. The longer you stay in your home, the more paying points makes sense. Find your break-even point using the calculator at mtgprofessor.com.

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The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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