CHICAGO With mortgage rates still hovering near historic lows, this could be the right time to buy a home or refinance a mortgage, but nailing down a low-rate, low-fee loan isn't that easy.
Winning one of the best deals in the current volatile mortgage market is like shooting a bullseye from a roller coaster, say brokers who are close to the action. Rates are still running under 4 percent for 30-year fixed rate loans, reports Bankrate.com, but they do fluctuate and not all applicants get the best rates. "It's unpredictable," says Cathy Milligan, a veteran mortgage broker with Marina Funding Group in Ventura, California. "Some people don't even know to check around. They just assume that they go to their bank and that they're going to get the best loan there is."
But Milligan has seen events as far away as a bond market rout in Europe or a New York selloff in Treasuries affect the rates she can find for her clients. Mortgage rates fluctuate far more than they used to, and there can be a broad range of rates and fees available from different lenders, she says.
That means borrowers have to search wider and work harder to get a good loan at a good rate. And once they find one, they have to be prepared to lock it in.
Here's some advice from Milligan and other mortgage experts on how to get a good home loan now.
First, obtain your credit score
FICO scores remain the standard by which many mortgage lenders assess a borrower's creditworthiness, and it now takes a score of 760 or better (on an 850 scale) to get the best rates, according to FICO, the company that created those scores. They are calculated on the basis of information in credit reports, so if you've had any credit problems in recent years, it is a good idea to make sure your score is solid before you apply for a loan. You can get your credit reports for free at AnnualCreditReport.com, but you'll have to pay for your FICO score at MyFico (www.myfico.com).
Check it about six months before you want to apply for a loan, to give yourself time to correct errors or to improve your credit performance, and your score.
The Federal Trade Commission outlines a two-step process for fixing credit report errors that can affect scores. First, tell the credit reporting company, in writing, what information you think is inaccurate. Then, dispute the items in question with the creditor or other information provider. A sample dispute letter can be found at the FTC's website (link.reuters.com/myw47s). You can also improve credit scores by reducing your credit card balances and making all your payments on time.
Get all your paperwork ready
That way you can jump on a good rate when it appears. The documents you'll need can be daunting, so begin as soon as possible. For starters, you'll need federal tax returns for the last two years, a minimum of one month's worth of pay stubs and about three months worth of bank statements.
If you are refinancing or know which home you are planning to buy, you can get an appraisal done and put in the file, suggests Grant Cardone, author of "Sell or Be Sold: How to Get Your Way in Business and in Life." That puts you in a better position to lock in," he says.
But it's best to talk to the lender or mortgage broker before you do that, because not every lender will accept the word of every appraiser. If you choose an appraiser your lender won't use, you will just end up paying for a second appraisal, and instead of saving time and money you'll waste both.
Cast a wide net
When you are shopping for quotes, try a mortgage broker, a banker, a local lender, a credit union, a national lender and at least one comparison website like Bankrate (www.bankrate.com), Mortgage Marvel (www.mortgagemarvel.com) or HSH Associates (www.hsh.com). Try your private banker too, suggests Cardone. A banker who wants all of your financial business might go the extra mile o win the relationship.
Focus on fees, not just rates
You won't learn the true cost of your mortgage until you know about all the fees that come with the deal. Everything from photocopying costs to legal fees can be charged back to you, and you may even face different fees for different lock-in periods, says Keith White of Marketplace Home Mortgage in Minneapolis.
If you need to lock in a rate for 60 days instead of 45 days, for example, that could raise your costs even though the rate stays the same. You can also be asked to pay origination fees called "points" for lower mortgage rates.
At websites such as Mortgage Marvel, an estimate of the closing costs is included in quotes. If you're working with a broker or lender directly, you should ask for the so-called "good faith estimate" of closing costs required by the U.S. Department of Housing and Urban Development. When comparing two different loans, compare annual percentage rates (APR), which take account of points and closing costs as well as the basic mortgage interest rate.
Monitor rates closely but not too close
Be ready to jump if rates drop for a few days, but don't obsess about it, lest you miss out on a buying opportunity, says Joe LaBate, who works with White at Marketplace Home Mortgage in Minneapolis. He says 45 days in advance is a reasonable time to lock in a rate for a refinancing. If you are buying a home 90 days would be safer, because various events could delay the closing.
Crunch the numbers
Online calculators can help borrowers evaluate whether they're better off paying points for a lower rate, or a higher rate without the points They can also help you decide whether to take a shorter-term loan or a longer one. You can find mortgage point adviser calculators at Bankrate.com (link.reuters.com/max47s) and LenderHomePage.com (link.reuters.com/nax47s).
For an example of how different mortgage rates and terms could affect a borrower's monthly payments and long term costs, see the chart at link.reuters.com/fes47s.
(The author is a Reuters contributor. The opinions expressed are his own.)
(Editing by Jilian Mincer, Linda Stern and Steve Orlofsky)