SHOPPING FOR A LOAN RATE?
The number one question we receive is, “Please give me your best rate quote”, or something similar to that.If you choose a lender based solely on the best rate quote, you’re likely to get a big surprise later. Most people think you shop for a loan like you would shop for a car or a refrigerator or a couch.They are shopping for the lowest rates.
There are thousands of lenders out there, but the truth is, mortgage rates, especially with fixed type loans, vary only slightly from company to company. Rates between legitimate companies usually vary no more than 1/4% for the same point quote. Why is that?
Banks, mortgage brokers and mortgage bankers get their funds from the same secondary market sources. There are simply very few of these sources that purchase these loans and sell them on the wall street. So this is not a big, endless and a inefficient market, where one can take advantage of the market inefficiencies.
Simply put, the pricing is more or less uniform with different bells and whistles added. On top of that the pricing and rates change daily just like the stocks.
There is generally only around 1/4% gross profit in mortgage money. That’s it. If that is the case, how can there be a lender at 7% when everyone else is at 7.5% for the same total cost, on the same day?
The answer is there isn’t. Unless they’re working for free, the quote is designed to get you to apply.Later on, when it comes time to lock in your rate, you’ll get what everyone else has, but they still got your business, didn’t they? You might even end up with a real novice who doesn’t return calls, or perhaps bungles up your loan completely.
You don’t need any special education to start selling mortgages. Having the title of “loan officer” does not automatically mean you’re good at it. It takes time to be good at it. I’m sure you’ve heard the horror stories. We hear several every week and sometimes end up jumping in at the last minute to save someone’s transaction.
The problem is that some of these low are rates cannot be locked until approved. At that point they lock the rate for a very short period of time, during which time you must close. This is usually 10 days. While waiting for the approval, your rate can change. Any lender, can quote a lower rate on a “short lock”. Be aware that there is rate risk while your loan is in process. Most of these types of lenders tend to have high “garbage fees” in exchange for being able to quote lower points. Garbage fees are not deductible, whereas points are, making the effective rate even higher under those circumstances.
Adding a prepayment penalty can also lower the rate slightly for all reasons. Unfortunately, most borrowers focus only on the rate, not the mathematics. The real cost of your mortgage is a combination of rate, loan points, other fees and actual terms, not one or the other.
Most home loan applicants fail to shop correctly.The more lenders they talk to, the more they get confused.So, what do you do?
Once you weed out the people that are obviously on the high end or are lower than everybody else, choose someone that’s competitive and that you can trust. Ask for meaningful references, how long they have been around ? What is the company about ?And so on.
Don’t gamble with something as important as your mortgage.Please take a look at our business philosophy and then decide.
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