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The Truth About Shopping for Mortgage Rates
With so much lender advertising focusing just on rates, you may not be aware of the importance in choosing an experienced, reliable loan professional who can match you with the appropriate loan program. Good loan officers and mortgage brokers may quote today's rate when asked, but they will quickly add they need to know more about you to determine the best program for your individual situation. So rather than asking questions, you should be prepared for, in fact looking for, a loan officer who asks you questions about your credit history, employment, income, down payment, and future plans.
With the ever-changing variety of loan programs, there's a lot to learn about what's available and which program could suit you best. Here are a few loan options: Fixed rate. 15 year, 20 year, 30 year. Adjustable rate. Adjusts after 6 months, 1 year, 3 years, 5 years, 7 years or 2-step. Low down payment. No down payment. 80% first/20% equity. Over 100% LTV. Interest only. Buy-down. Reverse. Convertible. Balloon payment. Bi-weekly payments. Conforming. Non-conforming. Conventional. FHA. VA. First-time home buyer. Special government programs. Self-employed. Full documents. Low documents. No documents. Credit-challenges. Bankruptcy. Unique property. Whew! And there's more, which is why finding a knowledgeable, trustworthy loan professional should be your first consideration.
Also, rates are time sensitive. The eye-catching ad you see in the newspaper was probably prepared at least five days ago. Rates may change several times a day as well, and, without a lock-in, a quote doesn't mean a thing. And don't you wonder how every lender claims to have the best rate? Retired mortgage banker George Chaney said, "A buyer who rate shops may be getting quoted today's rate from one company, tomorrow's rate from another, and a bet on next week's rates from a third. It's like comparing apples to oranges to pears, and the clients will never know what they're getting. In reality, the number one priority for the average home buyer should and must be the quality of the counsel they get, how the products meet their needs, then the rate, then the costs to close."
According to Brian Sacks, Branch Manager of Integrity Home Funding, in Owen Mills, Maryland, and expert on assisting borrowers nationwide with credit challenges and bankruptcies, "Consumers don't usually shop for the cheapest attorney or physician when they need help in those areas, but they'll shop strictly by rate when they need a mortgage. That's mostly because they don't understand the loan options available to them. They're thinking plain vanilla 30-year fixed rate. They don't realize a mortgage broker will find them the best loan program first, then find them the best rate. Plus there's the strange one-upsmanship caused by family and friends comparing rates and bragging if they have a rate that's one-eighth less. It's natural for everyone to want the lowest rate, but the most important consideration is getting the right loan program with the best rate possible for that particular borrower's circumstances."
Tom Ward, CEO/Founder, Majestic Mortgage Corporation, headquartered in Vernon Hills, Illinois, agrees: "It's almost universal that the first question on first contact with a consumer seeking a mortgage is: 'What's your rate?' It's no different in Florida than in Washington state. Consumers are conditioned by advertising, and not just by online lenders like Lending Tree, that price is their only concern."
Comparing Internet rates to traditional lenders, Tom adds, "Our own comparison of note rate to note rate and APR to APR shows Internet 'best price' claims proved hollow. The Wall Street Journal has also reported on the fallacy of 'best price' on the Internet."
"If it sounds too good to be true, it is," says Brian Yampolsky, Owner of Orion Mortgage, in Phoenix, Arizona. "Listen to that voice inside your head that tells you when to be skeptical. It's there for a reason. Often times, lenders put their best foot forward? They'll make assumptions on certain factors that can affect the rate, such as the size of the loan, the amount of down payment, if a primary residence will secure the loan, if the credit scores are high enough, etc., etc. If you don't fall into that box of assumptions, then it's unlikely you would be able to get that rate.
"So, whether you're buying a new home or trying to decide if it's worth refinancing, do yourself a favor. Forget the allure of artificially low rate ads and ask someone you know and trust for the name of a trusted mortgage broker. He or she should be able to educate and advise you on how to save your money and time and prevent you from making costly mistakes when choosing your next mortgage."
These days, there's another consideration that's more important than rate: Competence. Whether or not you're able to buy the home you want may well depend on how reliable your loan officer is. In hot real estate markets, sellers are taking backup offers with higher sales prices. As a result, they may hope the first transaction falls through. Under normal circumstances, if your lender doesn't comply with a specific contract condition, the seller would let it slide. In a hot market, where more lucrative backup contracts are common, if your lender misses a deadline in the contract, it could cost you your dream home. The best rate in the world is worthless if incompetence means your transaction doesn't close.
So how do you find a loan professional you can trust? Start with referrals from people you know: family, friends, real estate agents, escrow officers, attorneys, accountants? A referral is unquestionably your best bet at finding a loan officer with a proven history who knows how to close a loan.
Good luck with your search for the loan officer and loan program that are right for you. Obtaining a home loan can be stressful, but working with an expert will lower the anxiety and better ensure a positive result.
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