First, congrats on shopping the rate. That is a great first move. Too many people overlook this altogether. Loan officers are typically paid a commission by the lender to sell you a mortgage. The higher the rate, the higher the yield split, OR commission for the loan officer.
This is mainly focused at borrowers looking to buy a home. However, anyone looking to get a mortgage of any kind would benefit to read through.
#1) Know that if you are purchasing a property, there is some risk if the mortgage company does not get the job done. Real estate contracts have a closing date on them. There is typically a seven day unilateral extension option on standard GAR contracts. However, after that, your earnest money will be in jeopardy. So, if your lender cannot close on time, you could lose the earnest money and the right to buy the house.
#2) Know that if you are shopping today and can't lock today, that you will need to shop again when you have the property to get the lowest rate. Why?
Well, first, there are some loan officers that will lie about what they can do today, so that they undercut everyone else you are talking to. Suddenly, those other names go in the trash, and when you go to lock in the rate, they have no competition at that point.
Second, there are times the lender is trying to 'buy' the market. In other words, one lender may be less right now, but in two weeks, another one might be. Lenders, like every other business have a maximum capacity. When they get to that point, they may raise their rates a little to increase the margins to pay overtime, temp workers, or just to make it worth it to put additional stress on their system. If a lender is slow, they may lower their rates just a tick to keep the loans coming in.
#3) There are direct lenders and mortgage broker. A direct lender is a company that will be handling the entire process. A mortgage broker has the ability to shop many different mortgage companies. So, which is better? A mortgage broker can often find the best rates. (they may also use that to just put extra money in their own pocket) However, mortgage brokers will often go with whatever company is giving them more profit for the lowest rate. If it is a difficult company to work with and your loan may not get done in time, many of them don't factor that in. Smaller direct lenders like Guarantee Mortgage and Brand Bank tend to have good rates and the ability to close on time, 99.9% of the time. (Especially if you have a good loan officer.) Larger banks are often the worst of both worlds. I have one specific large lender that I would never advise anyone to use. They nearly cost one of my buyers their earnest money TWICE. I won't say their name, let's just call them Stank of Amerika. If you are considering using a mortgage company that rhymes with this...reconsider.
#4) When you get locked, ask for a copy of the lock sheet. Otherwise, the lender is playing roulette with your money. They are hoping rates go down, so they can make more money. Most, however, will not eat the difference if rates go up. They will call and make up an excuse as to why your rate is different. And, you may be two weeks into the process and need to close to save your earnest money and get the house you want.
#5) There are new regulations that will protect you somewhat compared to five years ago. These keep loan officers from making a mint off of you. However, that is very limited and there is a lot of wiggle room.
#6) And, this is very, very important. If you intend to be in the house long term, especially if it is the entire term of the mortgage, shop by the APR. The APR is the actual cost of the loan to you. Lenders can charge points and fees, and all sorts of different things as profit centers. A 3.5 interest rate with no points and low fees is most likely a better deal than a 3.375 interest rate with a 1 point origination fee. The APR factors in ALL costs for the length of the loan. This can make it MUCH easier to cut through all the fees and charges on the quotes.
#6a) If you are planning to move in less than ten years, and the lower APR has higher fees up front, then you have more work to do. If the lower APR has higher up front fees, then take the additional fees and divide it by the amount of money you will save per month. So, if one payment is $25.00 per month less, but it costs you $2500.00 more to get the loan. You will break even in 100 months. So, if you plan on moving in less than 8 years, it would be smarter to go with the one that has the fewer upfront costs.
This is mainly focused at borrowers looking to buy a home. However, anyone looking to get a mortgage of any kind would benefit to read through.
#1) Know that if you are purchasing a property, there is some risk if the mortgage company does not get the job done. Real estate contracts have a closing date on them. There is typically a seven day unilateral extension option on standard GAR contracts. However, after that, your earnest money will be in jeopardy. So, if your lender cannot close on time, you could lose the earnest money and the right to buy the house.
#2) Know that if you are shopping today and can't lock today, that you will need to shop again when you have the property to get the lowest rate. Why?
Well, first, there are some loan officers that will lie about what they can do today, so that they undercut everyone else you are talking to. Suddenly, those other names go in the trash, and when you go to lock in the rate, they have no competition at that point.
Second, there are times the lender is trying to 'buy' the market. In other words, one lender may be less right now, but in two weeks, another one might be. Lenders, like every other business have a maximum capacity. When they get to that point, they may raise their rates a little to increase the margins to pay overtime, temp workers, or just to make it worth it to put additional stress on their system. If a lender is slow, they may lower their rates just a tick to keep the loans coming in.
#3) There are direct lenders and mortgage broker. A direct lender is a company that will be handling the entire process. A mortgage broker has the ability to shop many different mortgage companies. So, which is better? A mortgage broker can often find the best rates. (they may also use that to just put extra money in their own pocket) However, mortgage brokers will often go with whatever company is giving them more profit for the lowest rate. If it is a difficult company to work with and your loan may not get done in time, many of them don't factor that in. Smaller direct lenders like Guarantee Mortgage and Brand Bank tend to have good rates and the ability to close on time, 99.9% of the time. (Especially if you have a good loan officer.) Larger banks are often the worst of both worlds. I have one specific large lender that I would never advise anyone to use. They nearly cost one of my buyers their earnest money TWICE. I won't say their name, let's just call them Stank of Amerika. If you are considering using a mortgage company that rhymes with this...reconsider.
#4) When you get locked, ask for a copy of the lock sheet. Otherwise, the lender is playing roulette with your money. They are hoping rates go down, so they can make more money. Most, however, will not eat the difference if rates go up. They will call and make up an excuse as to why your rate is different. And, you may be two weeks into the process and need to close to save your earnest money and get the house you want.
#5) There are new regulations that will protect you somewhat compared to five years ago. These keep loan officers from making a mint off of you. However, that is very limited and there is a lot of wiggle room.
#6) And, this is very, very important. If you intend to be in the house long term, especially if it is the entire term of the mortgage, shop by the APR. The APR is the actual cost of the loan to you. Lenders can charge points and fees, and all sorts of different things as profit centers. A 3.5 interest rate with no points and low fees is most likely a better deal than a 3.375 interest rate with a 1 point origination fee. The APR factors in ALL costs for the length of the loan. This can make it MUCH easier to cut through all the fees and charges on the quotes.
#6a) If you are planning to move in less than ten years, and the lower APR has higher fees up front, then you have more work to do. If the lower APR has higher up front fees, then take the additional fees and divide it by the amount of money you will save per month. So, if one payment is $25.00 per month less, but it costs you $2500.00 more to get the loan. You will break even in 100 months. So, if you plan on moving in less than 8 years, it would be smarter to go with the one that has the fewer upfront costs.
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