How come other lenders haven’t told me that I can pick my own rate?
Before I get into the rates and fees, make sure you check to see that the loan professional you are working with is actually LICENSED with the NMLS which I explain why here and you can check by clicking here
Ok here’s the skinny on how interest rates work:
Interest rates can change daily and even hourly and are priced based on several things called RISK factors. Remember, the bank/ investor makes their decisions and pricing based on the likeliness of getting paid back.
- Loan Amount
- Loan to value (sale price divided by Loan Amount)
- Credit Score (middle of all three)
- Purchase or Refinance (cash out or not for refinance)
- State and County of home (collateral)
- Qualifying Ratios (Debt to income ratios)
- Condo,Single Family, Duplex or Multi Family
- Length of time for lock period (25, 30, 45 days – longer time needed, the higher the price)
- Owner Occupied or Investment property
Now, once all this information is provided, we PRICE IT OUT and get our quotes. (Banks only have ONE option, while mortgage Bankers have Many banks and investors to pull quotes from – therefore getting you the best possible rate at that time)
This is where it gets tricky. We get a spread of rates to choose from. I call this above, at or below the line.
Each rate offered either pays back money (points) above the line, or costs money to get – below the line
(Rates below are just an example to make it easy to understand and is not a current rate quote)
If the rate is PAR, this means the company must charge you the company minimum (otherwise they would be doing the loan for free, which wouldn’t be worth your business) Most likely, no less than 1 point. (Average could be about 1.5%)
If the rate you choose is giving Back money, then you must use it towards your closing costs. If the bank/seller is paying your closing costs, then you would need to choose one of the other rate options. Some loan officers won’t even give you an option only because they know how the loan should be structured the best for you but won’t take the time to explain it to you.
The other thing to look at when comparing rates, are the FEES. There are NORMAL operating fees and what some people call JUNK fees. I honestly haven’t seen many junk fees lately due to regulations, but these are the most common operating fees:
- Processing Fee
- Underwriting Fee
- Document prep Fee
- Application Fees
- Credit Report Fee
- Tax Service Fee
Be sure to see what the Mortgage company fees are and break them out of the ENTIRE list of fees. We are required to estimate all third party fees when doing our estimate, so it can get a little confusing as to which fees belong to which party.
Be sure to compare rates on the same day and preferably at the same time if the market is moving quickly in either direction.
Some banks or credit unions will only change their rates once a week which might not give you the best rate if the market has since moved in a favorable direction.
So to recap, the questions you should be asking when comparing company’s once they have your details.
- Is the loan officer personally Licensed with the NMLS
- What are the rate options with and without points
- What are the mortgage company specific fees
- How long is the rate good for (if the rate expires before you close, you may incur an extension fee)
So don’t always ASSUME that the rate on your approval letter is the rate you are getting. I personally qualify my clients at the Highest rate with the highest fees to leave room for the market to move, so that you don’t find a home and not qualify because the rates have moved during your search.
As always, make sure you are working with a professional that you can TRUST to be there with you throughout the entire process.
Serving all of Sunny California!
By Colleen Craig Socalmtgpro, The Mortgage Ninja