The Ventura Mortgage Guy

Ok-you now understand what to look for in a loan officer based on my previous post. Now let’s talk about rate shopping. But, let me be clear, shopping for a rate and not taking in consideration the person or entity that will orchestrate the rate to the finish line is crazy. I have seen to many times, people changing rates from one lender to another only to become very frustrated due to excess fees, or delays.

With that being said:

1. If it seems too good to be true, it probably is. Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, then you better ask a few more questions. Is there a prepayment penalty, are there extra fees, what is the length of the lock-in.  Many quotes that are given are for the shortest lock (meaning 7 or 15 days). In reality, you will not get your application turned around in that amount of time, therefore you would need to lock in for a greater length. Locking in for a longer period costs you more in points. Also if fees are minimal, is it built into a higher interest rate?

2. You get what you pay for. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process in the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, you may not close at all. Some times it is too late and yo find out that you can not close (especially with all the changes in the mortgage guidelines) and now when you go out to find another rate and source the rates have increased. Or course if you want the cheapest rate, head out to the Internet..yikes! The stories about last minute changes, increase in rate and fees or worse yet, not closing on time are usually Internet transactions. Ask any competent Realtor and they will suggest (demand) that you speak with a local experienced lender. This is the largest financial transaction you will more than likely be involved in, don’t risk it.

3. Compare apples with apples. First, make sure you are comparing quotes from the same day. Second, review lender fees and points against another lender fees and points. What I mean is that if you look at the bottom line, some lenders may skimp on the third party fees in hopes that it makes them look less expensive.

4. Understand that interest rates and closing costs go hand and hand. This means that you can have any interest rate you want, but you will pay more in points. On the other hand, you can have less fees, discounted points or no costs at all but you will have a higher interest rate. One strategy is not better than the other. It depends on your current situation and long-term goals. A professional loan officer will guide you through this process.

5. Finally, you must understand that interest rates and points can and do change daily and even hourly. If you are comparing lenders, this is a moving target on an hourly basis. For example, if comparing two lenders, you must get a quote from each of them on the same day and at the same hour to be exact. You must also know the length of the lock as well to compare the tow lenders. As mentioned above, one could quote a 15 day rate and another a more realistic 45 day lock.

Bottom line, ask the right questions, determine which lenders are competent and will provide the service that is required on a transaction as big as this and then if choosing between two compare on the same day.

Is this a loaded question?

This can be answered many ways. Let me give you my thoughts.

First and foremost, make sure you end up working with someone competent. This will more than likely be the biggest investment in your life and is far too important to put in the hands of someone who is not capable of advising you properly and troubleshooting the issues. So first, how can you tell if you are working with the right person?

Ask these simple questions, which your lender must get right!

1. What are mortgage interest rates based on? Answer-Mortgage backed securities (MBS), not the 10 year treasury. Although the 10 year treasury can trend in the same direction of MBS, but it can move completely in the opposite direction. Make sure you are working with a lender that has their eyes fixed on the right indicator.

2. What does it mean when Bernanke and the Fed “change rates”, and what impact does it have on mortgage interest rates? Answer-Typically when the Fed moves rates, they adjust the Feds Fund Rate or the Discount Rate. These are SHORT term rates that impact home equity lines, auto lines, credit cards and so on. On the day that they make a move, long term rates (mortgage rates) may even go the other direction. Other times it can be priced into the rates ahead of the move and you will not see much difference on the day of the move.

3. Does the lender have access to live, real time mortgage bond quotes? Answer-You should know the answer to his by reading #1. If your lender is not tied into a real time quote during the day, then how will you be able to make informed decisions when there is an intra-day price change? In today’s volitale environment, we have seen rates priced in the morning, only to change not once but twice during the day. You may be working with someone that is reading yesterday’s news. Would you work with a stockbroker who based your investments on yesterday’s paper?

Yes, finding a rate that works for you is important, but you need someone that will also orchestrate the transaction for you. There is a lot that is involved with purchasing or refinancing a home. Most importantly, work with someone that understands the market, has experience in navigating the real estate/mortgage world, and who you can trust. Trust is so important when you put the biggest investment of your life in the hands of someone. Most of can get a feel if someone has their best interest in mind, not their own. Look for testimonials as well.