I have been advising borrowers in need of residential mortgage financing for over seventeen years. My experience shows that no matter how sharp, smart, intelligent, educated, or ignorant a borrower is, the mortgage rate trap that everyone falls into is the same. Unfortunately, by the time a borrower realizes that they have been misinformed, misled, or just given only part of the mortgage rate history; Your inept, inexperienced, ignorant and eventually disinterested loan officer / customer service representative has earned an undeserved commission.
How many times do I sit down and answer my phone just to hear “Hi, so and so was recommended to me and uh, I’d like to know, uh, what is your rate today?” My mind races with “Do you have a contract? How much are you looking to borrow? What is your current mortgage size? What is the purchase price? How is your credit? Can you check income? Are you locking the rate? How how long are you looking to lock the rate? When do you want to close? Do you have other properties? Are you buying the property for living or for an investment? What type of property are you buying? ” answers to all these relevant questions (and more) RATE EFFECTS! This deserves to be repeated one more time: the answer to all these relevant questions (and more) EFFECT THE RATE! So, I tell the respective caller while rating my answer: “If you have good credit, you can verify your income, you intend to live in the property, and you can show enough liquid assets to buy the property that the current mortgage rate is X. “
Please understand that I do not blame borrowers for asking the question, BUT I, as a mortgage professional, am frustrated by watching consumers make the most important financial decision of their life based on misleading advertisements and other information or the lack of it. . The trick is that the advertisements and customer representatives of many mortgage companies confuse and / or mislead the consumer into applying for a mortgage with their company while legally and ironically complying with the federal laws established by our government to protect the consumer. When do you or the borrower find out that the rate and closing costs are not what they appeared to be? AT THE CLOSURE! The old bait and change still exist, but even more costly is withholding relative information. Many mortgage brokers feel they have a better chance of closing your mortgage when they give you a direct answer to your direct question without volunteering the other relevant information you’d like to know, if you knew enough about mortgages to ask. This other information is used in conjunction with “what is your rate?” The question can save you a lot of money at the closing table and over the life of your loan.
There are many variables that go into each and every mortgage transaction, and each transaction is unique to the borrower. I’ll try to give you a general guideline of the “other information” you need to know so that you can compare mortgage rates wisely and, if you wish, select a mortgage professional who knows what they are doing, what they can, in Consequently, save you thousands of dollars.
1. Rates fluctuate daily. Some lenders lag behind the market and some adjust immediately to the market.
2. A conforming mortgage to Fannie Mae and Freddie Macs; (Major Mortgage Buyers) Underwriting Guidelines. Your maximum loan limits for 2007 are: 1 family home $ 417,000 2 family homes $ 533,850 3 family homes $ 645,300 and 4 family homes $ 801,950. Rates are generally competitive among lenders, between an eighth and a quarter rate. Jumbo mortgages exceed compliant ceilings. Giant fees are typically higher than compliant fees.
3. Occupancy affects rates. The primary residence is occupied by the borrower. A fee may have an add-on (increase), if the property is a second home, a vacation home, or if the property is used for investment (you rent it out).
4. Loan to value (LTV) is the amount of the mortgage divided by the value of the property. The higher the LTV, the greater the risk to the lender and the possibility of a higher rate.
5. A cash-out refinance (cash on top of your current mortgage) can lead to a rate increase depending on the lender.
6. Generally, the shorter the loan term (30 years vs. 15 years), the lower the rate.
7. The better the credit, the better the rate. Today, lenders really focus on a credit score. A number determined by comparing your pattern and credit history against the credit bureaus’ database of proprietary mathematical formulas and models of historical consumer credit patterns. If your score is low, you could be a candidate to re-qualify your credit (legally) to increase your score and consequently give you the opportunity to obtain a better rate. Make sure the time frame for getting the money you need matches the time it takes to correct or repair your credit. Otherwise, the time it takes to correct or repair your report may prevent you from taking advantage of current low rates or special offers that defeat all purpose (“A bird in your hand …”).
8. Compensatory factors affect the rate. The lender may offer you a lower rate due to a low LTV. A good credit score with borderline income can allow you to get a better mortgage rate.
9. Mortgage brokers and lenders have different programs for different types of borrowers. Generally, the more financial information you provide, the better the rate. The programs are: Full Income Total Asset Verification, No Income with Asset Verification, No Income Without Asset Verification, and Declared Income with Asset Verification. The key is to make sure you match the right show so that you not only get the right rate, but also make sure you don’t get turned down. For example, you apply for a full-income full-asset loan program, but it doesn’t show the necessary income to qualify on your tax return, but you may have qualified for a type of program without income verification.
10. There is, or is assumed to exist, a correlation between rates and points. One point is an initial fee of 1% of the loan amount you are borrowing. “Lowering the rate” means paying points to lower the rate. “Raising the rate” means paying fewer points to increase the rate. You will most likely want to pay points if: (a) you need to lower the rate to qualify (b) you will own the property long enough to amortize (get back) the money in points you paid in advance (c) You have the extra money cash. You most likely don’t want to pay points if: (a) You don’t have the extra money (b) You will own the property for a very short time (c) You think rates are going to drop shortly. There are other reasons for paying and not paying points, which must be discussed on a case-by-case basis.
I’ve saved the best for last!
11. LOCKING THE RATE. When you call and ask “what is your rate?” Usually you will be quoted the current rate, a / k / a as a floating rate, which means that if you are ready and able to close within 15-21 days (which means you have applied for a mortgage, you have provided your information you have a lender compromise, appraisal, title report, etc.), and you have set the rate at this time, this is the rate you would get. Now, how many first-time home buyers do you think fit that situation, hmm? Most residential real estate purchase transactions do not realistically fit into a prevailing rate time frame. Most borrowers are not informed, at the time the rate is quoted, whether the closing period is ready to close in 15-21 days. So if rates are going down, that’s fine. BUT, if the rates are increasing, surprise!
The current rate quotes will always be lower than the fixed rate quotes. So if you’re shopping for fees and want to compare apples to apples, when a fee is quoted to you, the key is to make sure you ask, “How long is the fee fixed (protected)? Are there points, origination fees, fees? What are the blackout terms available? “More importantly, make sure you can close within that time frame, otherwise you may be subject to extension fees. Generally, the longer the lock, the more it costs. Lockdown periods are typically 15 days, 30 days, 45 days, 90 days, 120 days, 180 days. Paying points, increasing the rate, or both, incorporates the cost of the lock. You may want to ask if there is a floating option available (if the rate goes down after the lock, can you get the lower rate?). More important than getting a fixed rate agreement in writing, make sure the person you are dealing with is honest. , reputable and whose word means something.
12. The APR (annual percentage rate). I call it another proven scam. A borrower is supposed to receive the APR along with closing costs and rate information. If you look at newspaper ads, you will often see an advertised rate between one half and one percent lower than the actual market rate. If you look next to that rate, you will see what is known as the APR. This ad is perfectly legal, as long as the indicated rate is accompanied by the APR, but in reality this is very complicated. Under federal regulation Z, the APR is assumed to be the measure of the actual cost of credit, expressed as an annual rate. The government is trying to help you, the consumer, in your loan decisions by having loan providers give you the “true cost of credit” APR. They mean well, but unfortunately, most people don’t have the sophistication, knowledge, time, or financial calculator to calculate APR. Simply put, taking the loan amount, the rate being quoted, and factoring in closing costs in the calculation, you arrive at the APR. So the rate you see in the newspaper that appears to be lower than everyone else’s doesn’t mean anything unless you know exactly what the closing costs are. In these cases, the APR hides the closing costs. You’ll find that most of those that advertise below market rates have several points built into their closing costs. When buying mortgages, instead of comparing annual percentage rates (APRs), for your sake, keep it simple. Find out the rate, how long it’s locked, and all closing costs included, then shop around. I hope this article saves you thousands of dollars and good luck to all mortgage buyers.