You’ve decided to move forward with a mortgage or refinance. Suddenly, you’re faced with too much information. Comparing rates, products and programs can be a challenge. Here are some topics to consider.
1. If it seems too good to be true, it probably is.
Mortgage financing and interest rates all come from the same place. If a product or program seems unbelievable, it probably is. Make sure to verify the following factors.
- Prepayment penalties
- Extra fees
- Length of rate lock
- Upfront discounted fees that are built into a higher interest rate
2. Is the cheapest option the best option?
Purchasing or refinancing your home is a significant financial decision. Placing this process in the hands of the “lowest bidder” may not help to meet your long-term mortgage goals. Some of the pitfalls often experience with low-fee financers can include missed closing dates, last-minute interest rate changes, or additional costs at closing. Place your mortgage planning needs in the hands of an experience, licensed mortgage originator.
3. Compare apples to apples.
When reviewing estimates, compare lender fees to lender fees. On some estimates lender fees may be included in title or state fees. Be wary of fees that may be understated or combined with other third-party services. In addition, be sure you know the APR (annual percentage rate). The APR is a number calculated from many different factors. APRs-not interest rates alone-should be used for comparison purposes. Be aware that “discounted” fees or loans without closing costs often come with a higher interest rate.
4. Mortgage rates can change quickly.
Comparing estimates is challenging because interest rates can change daily, even hourly. The only way to truly compare rates is to obtain two estimates with the same fee structure, that are based on rates pulled on the same date at the same time. It is important to understand the length of the interest rate lock in these scenarios, as longer locks lead to higher interest rates.
When should a buyer lock in the interest rate?
One of the first questions that clients ask their realtor after deciding to purchase a home is, “Should I lock in the interest rate, and when?” Even for the most experience agent, giving a helpful answer can be a tricky proposition. It is often assumed that as soon as a contract is signed by the buyers, the lender locks the loan. In fact that is rarely the case.
Best answer: “It depends”
Since the client’s needs, condition of the property, closing time frames and market volatility can vary widely from one transaction to the next, each client should first talk with us before making a decision. While we will make recommendations to the client based on their situation, ultimately it is their decision to lock or float. No single answer can apply to all transactions or clients.
Variables affecting the lock or float decision.
Do we have a fully executed contract? While the purchase transaction may appear to be close to an agreement, it may take a couple of weeks for all offers and counter-offers to be resolved and the contract to be considered fully executed. Locking in the rate before a full agreement is reached means the lock may expire before the final closing date is set.
Is this the property the client really wants? Once we input a specific property address into a loan file, this address cannot simply be deleted. If the deal falls apart, the loan file must be cancelled and a new loan started, requiring that new disclosures be signed by the borrowers. This creates unnecessary time and work for everyone, which can often be avoided simply by waiting a couple of days.
Is a home inspection scheduled? If it’s new construction with a warranty, an inspection may not be ordered, so we would lock as soon as the contract is signed. If the property is older, an inspection is ordered, and the agent feels from there may be issues, we suggest waiting to see if the client moves forward before locking. Once any counter-offers or repair addendums have been agreed to, then we are in a good position to lock in a rate.
Are there repairs that are likely to be required or requested? This is often the biggest frustration for the borrower. Finalizing repair negotiations, the seller sourcing contractor(s) and finalizing the work can often add several weeks to the closing date. Careful attention to the mechanics of this particular sale is required so we don’t lock too soon.
How volatile is the market? This may make the variables above void if the borrower and/or lender fear rapidly rising rates. It may be more beneficial to lock now and incur extension fees than to wait until the closing date is finalized, and risk a higher rate.
Definitions
Locked: An agreement between a borrower and a lender that allows the borrower to secure a given rate on a mortgage, during a specified time period at the prevailing market interest rate.
Floating: When a borrower has not yet secured a loan agreement with a lender for a specified interest rate and is subject to fluctuations in the market index, either up or down. A rate must be locked before final underwriting and loan documents are drawn.
Applying For a loan Just Got Easier!
Three ways to apply for a loan:
- Apply Online: Click here to get started!
- Call It In: Just call our office – we will answer your questions and give you the information you need to explore your loan options.
- Stop By Our Office: One of the best ways to learn about your loan options is to drop by and chat with us. We can help you get started with your loan applications in just minutes.
Contact us today to get started with your application, and discover how we can help make your dream of homeownership come true.