Our family has been daydreaming about relocating to the Vermont countryside for at least a decade. When we discovered a renovated farmhouse with a pond surrounded by the Green Mountains, we were all in. Except for one problem: mortgage rates.
We were ready to move and could afford the down payment, but the high interest rate on our home loan would make our monthly payments difficult. If we held out and waited for mortgage rates to go down, however, we would miss out on our dream home. So we rolled up our sleeves and went on a hunt to score a bargain basement mortgage rate.
We did have some negotiating tools: plenty of equity, a steady source of income and exceptional credit scores. Ultimately, we learned a lot about what it takes to buy a home in a tough housing market and why the lowest mortgage rate isn’t always the best option.
We got offered a mortgage rate of 6.25%
Before we began researching homes in Vermont, our family outlined our financial boundaries and reviewed our budget. The rock-bottom fixed interest rate we scored years ago when refinancing our Utah home was no longer an option. In today’s housing market, interest rates are nearly double what we’re currently paying.
We started gathering lender quotes and looking into prequalification, starting with our own credit union and another bank we’ve used for car loans. Our realtor also recommended finding local mortgage brokers who could untangle the red tape of financing a home in Vermont.
Between four different lenders, we were quoted mortgage interest rates as low as 6.25% and as high as 7.5%. While a 1% difference in a rate sounds small, it can make a sizable dent in your monthly mortgage payments.
Our Utah-based credit union and bank, both licensed to lend in Vermont, offered the lowest rates. Yet hidden in the fine print were wildly different figures for closing costs, fees and taxes.
That’s when we started realizing that the 6.25% mortgage rate wasn’t exactly the best deal, and why choosing the right mortgage lender matters. Working with a lender you know doesn’t always give you a leg up, especially in a complex market.
For example, a local lender will know the market and can connect you with others during the homebuying process, according to Nick Parent, mortgage broker and owner of Vermont Mortgage Company. “Local lenders will often have better connections to local attorneys, inspectors and appraisers, which should help expedite the process and ensure you can close on time,” said Parent.
Why we went with a higher mortgage rate
Once we had a few quotes under our belt, we went back to the Vermont-based mortgage broker and tried to negotiate for a lower rate. We didn’t get a drastic rate drop, but the financing package we walked away with saved us on unexpected costs for taxes and fees that would have been built into our monthly payments.
“Often a rate that is too good to be true may end up costing you more in fees, and overall may not be the best option,” said Parent.
In our case, the quotes from out-of-state lenders dramatically underestimated closing costs and other fees. Getting a comprehensive loan estimate from a local lender gave us a more accurate view of the actual cost of buying a home. Here’s what we learned in the process.
💡 Credit scores matter less than you think
What really helped us secure a better rate wasn’t a stellar credit score. It was our forthcomingness about financials, including income statements, bank balances and the value of other assets.
💡 You’ll have more leverage with more quotes
You can usually receive a basic quote from lenders or mortgage brokers without a hard credit pull, so get a handful to compare and contrast. Then go back to the lender you’d prefer to work with and ask them if they’re willing to negotiate.
💡 Read the fine print
Lenders who aren’t familiar with the local terrain significantly underestimated taxes, fees and other costs associated with financing a home in Vermont. This added up to a difference of thousands of dollars that would have translated to higher monthly payments.
Other ways to get a lower mortgage rate
There are plenty of other strategies for getting lower interest rates:
- Purchase mortgage discount points. In exchange for a lower mortgage rate, you’ll pay more upfront in closing costs.
- Make a bigger down payment. You can get a lower rate because you’re less of a financial risk to the lender. A larger down payment also means you pay less in principal and interest each month.
- Get a shorter loan term. Shorter-term home loans have lower rates, but just keep in mind that your monthly payments will be higher.
- Go with an adjustable-rate mortgage. ARMs have lower introductory rates but may bounce up or down depending on future market conditions.
Mortgage rates aren’t everything
While our initial goal was to nail down the lowest possible rate, we didn’t commit to the lender who offered us a fixed rate of 6.25%. Instead, we went with the broker who quoted us a slightly higher rate but who knew the local market. Our Vermont-based lender understood how to save us money upfront in closing costs and communicated with our realtor throughout the entire process.
Not one stone was left unturned. That’s worth a lot when you’re buying a home.
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