Interest Rate Shopping
4 things you should know
Mortgage interest rates have gone up since last year and many people are wondering where to get the best deals. We’ve been accustomed to rates in the high 3’s and low 4’s for 10 years. It’s no wonder people are shopping everywhere for the best deal.
This list is not going to be a technical summary of the market. Instead, it will serve as a guide for understanding what you should expect and ask for when shopping for a mortgage lender.
1) Interest rates constantly change
Have you ever watched the stock market? It fluctuates daily by the hour and by the minute. People trade on these fluctuations and the new data entering the markets about consumer habits, government legislation, and many other factors that influence how the market performs.
The same is true for mortgage backed securities which determine interest rates on home loans. A company can quote a rate today, but tomorrow it may change. Don’t settle or focus on the rate quoted as your interest rate when shopping for a home. That rate is not “locked” until you go under contract to buy a home and complete a loan application.
Ask for a loan estimate (LE) and pay attention to the “rate lock” box detailing the expiration date for those terms. Be aware of bait and switch.
2) Pay attention to the lender fees
Clients sometimes shop around and hear a company offering a better deal on the interest rate. When we review the lender fees, almost always do we find the lender charging more for origination than we do. The lender is charging additional points or higher fees to give the client a lower rate to earn the business. You can put lipstick on a pig, but it’s still a pig.
3) Not every pre-qualification letter is equal
It’s a misconception to think your pre-qualification letter for a home loan will be good with another lender. Behind the scenes, lenders can have overlays, or their process can be detrimental to your qualifying circumstances.
It’s important that the loan officer handling your file understands the ins and outs of your pre-qualification. Before you commit to a switch, the lender should have all your qualifying documents in hand and reviewed your documents for a pre-qualification.
Be transparent about your goals and situation. Otherwise, you can run into problems prior to closing and potentially waste your time and money.
4) Choose your lender prior to finding a home
I’ve been on the receiving end of a client switching lenders in the middle of a transaction under contract. A purchase contract has a strict deadline for the buyer to perform on the sale of the home. The lender is tasked with closing and getting the funds to title on time, no exceptions.
A switch in the middle of the process can be very stressful to all parties involved including the Realtors and Sellers. Thankfully, we’ve followed through and gotten things done. But not having confidence in your lender could cost you the house you expected to spend your life in with your family.
It’s a lot of work to pre-qualify someone for a home loan. There are many moving pieces and organizing them is like getting all 3 of my kids to eat their vegetables at dinner with the result being they get a treat at the end. It’s exciting when it’s time to buy a house but, there is work involved on both ends.
These are just some things you should know when shopping for interest rates. Interview your prospective loan officer and find out who will work with you and take your best interest at heart as their own. That’s where the real value is in working with a mortgage company.
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