LETTERS From CAMP Rehoboth |
CAMP Money |
by Chris Beagle |
Don't be Vulnerable!
Just the other day, a gentleman walked into my office and asked, "What's your best rate today?" It happens all the time. In the grocery store, at a restaurant, a family gathering, it is the inevitable question posed to every Loan Officer. Many times, it's as if the person is saying, "OK mister sales person, I don't want to hear a long-winded, sales-pitch type answer. I just want a simple, straightforward, honest response." And why not, the question itself is potentially the most direct means for someone to assess the worthiness of pursuing mortgage financing with me, or anyone else. If only it were that simple. You see, the gentleman left himself vulnerable to a quote based upon several factors that would have justifiably answered his question, but, unfortunately, may not have pertained at all to the final terms of his actual loan. To limit your vulnerability, here are the details you should be ready to use when asking a Loan Officer the "best rate today" question. For starters, let's say the gentlemen plans to purchase a new home in June, more than 60 days from now. Mortgage rates are based, in part, on the lock-in period. Most lenders price loans with lock-in periods of 15, 30, 45 and 60 days (more with some lenders). The best rates have the shortest lock-in, while the worst have the longest, simply because lenders must guarantee that rate for a longer period of time. Giving him a quote with a 15 day lock would have still answered the question but it would have done so with complete disregard for the actual day he needs the loan. Regarding refinances, you should still ask about the lock-in period as these loans are now taking most, if not all, lenders between 45 and 60 days to Close. Until recent months, this could have been done in 30 days or less. Loan amount also influences the rate. Conforming loans are $417,000 or less (higher if you live in a "high cost" area) and have lower interest rates than larger, "jumbo" mortgages. Currently, such rates are more than 1.00% higher than conforming loans. The gentleman's employment and income are also key considerations. Given current market conditions, there are virtually no loans available if one's income is not fully documentable. This is often a problem for self-employed borrowers. If you are a W-2 paid employee it is a good idea to mention that as well. The amount he is able to put down (or the amount of equity if a refinance) is another factor, as the days of "zero-down" financing are nearly extinct and it's uncertain as to when such financing will resurface. Typically, the more one is able to put down, the better in terms of influencing the rate. Presently, for single family homes, the ideal is 20%, while for condos, 25% down avoids rate/price add-ons. Speaking of which, property type is also a detail influencing rate. Be sure to mention if the home is a single family home or a condo, and if it is a primary residence, second home or an investment property. Next, make a point of asking if the quote includes any kind of Point(s). This can be tricky (and will be the topic of an upcoming CAMP Money feature), as it can be defined as a Loan Origination or Loan Discount fee. For now, know that Points buy the interest rate down. Unless you ask if Points are involved in the quote, the quote you receive may not disclose the point(s) but it still provides a general answer to the "best rate today question." An additional point on Points, ask for the APR (Annual Percentage rate) which reflects the amount of Points (and other fees) included in the quote. In general, the higher the APR is from the interest rate, the more Points are being charged. This is disclosed in the Truth-in-Lending Statement. Usually borrowers request the Good Faith Estimate, which is also helpful, but the TIL is equally as important and should also be requested. Many borrowers "shop" lenders and interest rates. If doing so, be sure to do so in a narrow time frame. Fluctuations in interest rates, which once took weeks, or even months, are now happening within hours. It is increasingly common to see rates rise, or fall, by.25% to.50% on the same business day. As a result, in order to make a "fair" comparison between lenders, it is imperative to do so within a narrow time frame, and certainly on the same day. Considering all of the above factors, and the volatility of a constantly-changing lending environment, it is more important than ever for borrowers to educate themselves as much as they can. Working with an informed and trustworthy mortgage professional is definitely to your advantage. Doing so will enable you to ask the right questions, get the right answers, and ultimately limit your vulnerability in terms of what is offered and what actually becomes your loan.Chris Beagle is a Senior Loan Officer at Fairway Independent Mortgage Corporation. For more information, contact Chris at 302-260-7090. |
LETTERS From CAMP Rehoboth, Vol. 19, No. 03 April 03, 2009 |