First-time mortgage shoppers in search of some guidance

Q: We want to get a first mortgage with as little time and hassle as possible. We already have a good idea of rates because of what we see in the paper and online. Doesn’t it make sense for us to select just one lender and go from there?

A: The odds are that you are likely to overpay for financing by speaking with just one lender, according to a 2018 report from the Consumer Financial

Protection Bureau (CFPB).

“Mortgage interest rates and loan terms can vary considerably across lenders,” states the report. “Despite this fact, many homebuyers do not comparison shop for their mortgages. In recent studies, more than 30 percent of borrowers reported not comparison shopping for their mortgage, and more than 75 percent of borrowers reported applying for a mortgage with only one lender.

“Research suggests that failing to comparison shop for a mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.”

Now, four years later, houses are more expensive so the risk of not shopping around is likely to be more costly.

The great oddity is that rules developed under the Dodd-Frank Act make comparison shopping very easy. Here are some steps to take.

First, as much in advance as possible before speaking with a mortgage lender, review your credit reports. These are available at AnnualCreditReport. com. You can get reports from the three leading credit reporting agencies:

Equifax, Experian and TransUnion.

Credit reports are used to create credit scores. You want accurate credit reports to get the best score. Check each report for factual errors such as name (“John A. Smith” versus “John J. Smith”), addresses or a credit item that does not belong to you, is too much, has been fully repaid, etc. Also, look for items that should not be on the report, generally information more than seven years old. If you find an error or outdated item, contact the credit reporting agency.

Second, ask friends, family, real estate brokers and tax professionals for lender recommendations.

Third, start a file with the paperwork you’ll likely need. Here’s good news: With your permission, lenders can get tax transcripts from the IRS and statements from your banks. That means there’s less for you to find.

Fourth, get preapproved for financing. Allow loan officers to check your credit, review taxes, etc. Different lenders, and different mortgage programs, have distinct qualifying standards. The more the loan officer knows, the more likely it is that the lender can match you with a loan program.

Fifth, look for grants and other forms of financial assistance at DownPaymentResource.com. There are thousands of programs nationwide to help homebuyers.

Sixth, you will receive a Loan Estimate (LE) form after meeting with a loan officer. This is a standard form that not only tells you about the lender’s financing offer, but it can also be used to compare offers from other lenders.

Read the LE form with care. Does a loan with a low interest rate also require big fees and charges? How do the APRs (annual percentage rates) compare? What are your total costs after five years?

So yes, get out there and shop for financing. You’ll learn a lot and the process will make your wallet happy.