SHOPPING AROUND?
HERE’S THE INSIDE SCOOP ON HOW TO DO IT RIGHT!

First: make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY. IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES! 

MORTGAGE MARKET KNOWLEDGE

1) What are mortgage interest rates based on?

The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.

Typically, investors take their money out of bonds when the stock market is strong or inflation is on the horizon. This lack of demand for Mortgage Bonds causes the price of bonds to drop, which in turn makes the yield (rate) go up. There is an inverse reaction when the stock market suffers or deflation is on the horizon. Investors then place their money into bonds, causing the demand for bonds to increase, and therefore the price increases. The increased bond price results in a lower yield or rate.

2) When Ben Bernanke, Federal Reserve Board Chairman, and the Federal Reserve Board “change rates”, what does this mean… and what impact does this have on mortgage interest rates?

The answer may surprise you. When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”. These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial markets in response to inflation. For more information and explanation, just give us a call.

3) Do you have access to live, real time, mortgage bond quotes?

If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!

4) What is happening in the market today and what do you see in the  near future?

A professional lender will have this at their fingertips. If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.

Watch anything that will have an impact on the economy as a whole, with major factors being the war on terror, oil prices, jobs growth, unemployment rate, the Consumer Price Index and the GDP growth rate. 

MORTGAGE PRODUCT KNOWLEDGE

1) How long can I lock my rate and what will it cost?

2) If we are locked in and rates go down, what options do you offer?

3) If we are locked in and rates go up, what is your policy if the rate lock expires?

4) In the event that I have less than 20% down payment, do you have options that will allow me to avoid paying private mortgage insurance (PMI)?

5) Do you offer a limited-documentation program?

6) What are my down payment and closing cost options?

7) Are you quoting the interest rate or APR?

8) On an adjustable rate loan, what is the index you use to generate a quote?

Normally, the index is either the LIBOR or the U.S. Treasury Security Index, although there are sometimes other options, such as the MTA, which is actually an averaged Treasury Security index. This will be disclosed to you if do go with an Adjustable Rate Mortgage (ARM).

9) Can you give me a 24-month history of movement on that index?

10) Is this the best index to have? Why is it best?

11) What is the margin associated with this loan?

12) What does LIBOR stand for, and is this a better index than a Treasury Security or other index?

LIBOR stands for the London InterBank Offered Rate. This is an international index and is typically a more stable index than the US Treasury Security. This means that it does not move as often and as fast. It is the preferred index for today’s mortgage industry, but not offered on every ARM. 

SERVICE
                                                
1) Do you offer a pre-approval program before I start house hunting?

2) What is the average number of days it takes for you to issue a firm loan approval?

3) What percentage of the loan applications you take go on to close?

4) How do I know this is the best loan with regard to how long I plan to stay in this home?

5) How will this loan affect my financial goals?

6) What kind of systemized follow-up program have you developed to keep the real estate agent informed on a consistent basis during the loan process, so they are aware of any and all important developments?

7) What kind of Communication Commitment do you guaranty your loan customers so they are also made aware of the loan progress.

8) Does a member of your team attend your loan closings to make sure the closing figures are correct and to answer any questions that may arise at that time?

9) What kind of long-term follow up program do you have in place to ensure that the borrower is up to date with the market and always has the most appropriate mortgage?

10) Do you close at least 100 loans a year and/or how long have you been in the business?

11) Can you provide five references? 

Be smart... Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life… but we do this every single day. It’s your home and your future. It’s our profession and our passion. We're ready to work for your best interest.

Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

First, IF IT SEEMS TO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?

Second, 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 into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience.

The best interest rate is a moving target. It is far more costly to get the best rate, even if you can find it, on the wrong program and strategy than it is to get a competitive rate on the right game plan for the rest of your life. This is the largest financial transaction most people will make in their lifetime. That being said – we are not always the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and relatively worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.

As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time – we are ready to work for your best interest!