Strategy to get the best mortgage rate possible in Houston

[Tristan S.]

Hello everybody,

I am about to get my very first mortgage here in Houston, TX. What is the best strategy to get the lowest interest rate possible? I should be getting a classic 20% down for 30 years.

I feel like going from banks to banks is counter productive as they are all going to run my credit which is going to damage it each time. And who knows if they will actually offer the lowest interest they can provide.

Is there a way to get a broker? If yes, how is he getting paid? I would like to know if it's possible to find someone that is unbiased.

Please feel free to recommend me any good broker you had a good experience with here in Houston.

Thanks for your help.

[Alexander Felice]

Rates are treated like commodities, you're not going to find them to be too different.

google mortgage rates and you'll find the lowest rate in seconds. You don't need a local lender.

if you PREFER a local lender, just call around. Shouldn't take you but an hour to call 6 banks and get their rates.

[Michael Le]

There are a bunch of Internet brokers. They shouldn't be pulling your credit until you choose them and explicitly tell them you're okay and ready for them to do so. They'll all give you the lowest rate with the assumption of Excellent credit and then you just choose from there. That said, I refinanced recently and found some credit pulls that I did not authorize. Even so, as long as the pulls are done within a short period of time, it should only hit your credit once.

In case you're wondering, I got the best rate from First Internet Bank of Indiana. Not an endorsement - just who gave me the best rate and lender credit combo.

[Tristan S.]

@Alexander Felice and @Michael Lethanks for the quick response. I'll definitely check all the resources you described.

From your experiences, is it better to go with a big name bank or a smaller credit union taking into account that I will probably need more financing in the future for new real estate investments?

Also, does every bank let you make extra payment towards your principal if you wanted to pay your mortgage off quicker?

I have also heard (not sure if true) that some bank compound interests twice a month and that making two payments a month would significantly decrease the overall amount of interest paid over the life of the mortgage. Is it true? Is there any other strategy to lower the amount paid towards interests?

Thanks.

[Upen Patel]

@Tristan S. Rates are a commodity. Mortgage bankers will throw around low rates. What matters is that they deliver on it without driving you up the wall.

With TRID that went into effect on Oct 3rd, the clowns in the mortgage industry will cost you delay, rate extensions and possibly having to take the loan else where and starting all over. Not to mention the cost of appraisals.

So while rates are important, don't be blinded by them. Look at the bigger picture. Especially with a purchase. You want to close on time and not loose the property.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

[Michael Le]

@Tristan S., I've never heard about the compound twice a month thing. There are usually no prepayment penalties and the paperwork will have a page that explicitly says so. If you do want to prepay, I believe it is best to state you want to pay down the principal.

However, the rates are so low right now, is there a reason you want to pay this off early? Considering that you want to invest in real estate, you want to take advantage of the leverage real estate offers. I'm assuming you think you can make more than the 3-4% that the loan is going to cost you. In that case, I would take that money and save up to invest in your next property.

[Jeff Trevarthen]

Interest rates are all relative.

For example, to get the lowest rate possible, you could pay points and buy down the loan.

You could also get an ARM loan which is amortized over 30 years with the various fixed initial periods (i.e. 3/1, 5/1, 7/1, and 10/1 ARM's). The rates will be lower.

There's also the interest only option and although you'd have a higher "interest rate", you're monthly payments are going to be lower.

So, finding the best rate is very dependent on the type of loan you're looking for.

In my case, I want the lowest payment possible because I know I'm going to build way more money in appreciation than paying down the  principle.  I also know that every dollar I give to the bank above and beyond what's required can be difficult to get back.  The only way would be to refinance or sell.  I'd rather have the cash in my pocket and not in the property. 

If you don't want to shop, have a mortgage broker do it for you. The pricing engines these days are really great. 

[Tristan S.]

@Michael Le, I was asking by curiosity and wanted to know that it was possible. Your strategy definitely makes sense. 

@Jeff Trevarthen, what I mean by best rate is a rate as fair as possible for my situation. Thanks for the information, it makes more sense now that you talked about the underlying strategy.

[Ned Carey]

You've gotten some great advice so far. But I want to put it into perspective. 

The availability of money is more important then the cost of money. 

You look like a young man. Historically rates today are very very low. Long term average is more like double to almost triple today's rates. My first homeowner mortgage was at 12% 

A difference of 1/2%, which by today's standards would seem like a lot, is relatively insignificant. The rates are so low it is essentially free money.

[Tristan S.]

Thanks @Ned Carey, 12% ! that does put things into perspective.

I am just really meticulous and want to make sure that I am doing things in the most efficient fashion. Buying for the first time is definitely a little stressful.

[Ned Carey]

@Tristan S. you are going to learn a ton on your first deal. I won't promise that it gets easier, but you do become more confident that you can handle whatever comes up.