I had told a short story in regards to a first time homebuyer being very confused over the mortgage process, even though I explained it well to them. Why did this happen? Because they started to talk to family members who got them to shop around and a realtor that told them one fee was too high.
No matter if you are going for a FHA, conventional, VA, or subprime mortgage, you not only need to feel comfortable, but educated. The story turned out in my favor because the previous lender wasn't keeping in touch with his clients after application in regards to the market, good or bad. Not giving his clients the option to lock-in or to float the rate. All consumers when shopping need to ask how long the rate is good for or if they can lock in. Too many lenders dangle lower rates that are only good for 15 to 30 days when shopping. You wouldn't know unless you asked. The ending? I gave my client a 6.5% rate compared to the other lenders 7.0% rate, both with zero points and same fees. But this was after I had them speak to their current lender, asking him if their rate was lower because of a positive market. He said no, thinking that he had them for good. Please read this story : Realtors, do you do this? Consumers, just be careful sometimes..... Locking in mortgage rates -- Part 1 of 2
Part of the application process is to go over a form called the Interest Rate Lock Agreement. It will have two boxes on this form. One box stating, I Do Not Want an Interest Rate Lock in at this time and the other stating, I Do Want an Interest Rate Lock in at this time.
Floating your rate : A very simple process. Many loan officers really don't go over this extensively. If they don't spend more than a few minutes on this and just have you sign it as a float option, RED FLAG. Just maybe because they gave you a lower rate just to get you into the door. Then what happens? Even if the market is stable, they will tell you right before closing that the market tanked, that your rate moved. Ouch!!
A good to excellent loan officer will go into specifics about locking or floating your rate. Spending more than 10 minutes on this subject. At least I do. You deserve the best, right?
Locking your rate : Yes, you are taking a risk locking in just as you would when floating your rate. Why is this? If you are 40 days out from your settlement date, you aren't sure what will happen. Rates could get better or they could get worse. That is your risk.
Once you lock in your rate, that is it. If rates go down, you don't get the better rate. How would you like it if they went up and I raised your rate after you locked in? Makes sense, right?
Now, you will have some loan officers out there that will tell you that if rates come down, that they will lock you into the lower rate. This typically comes from that desperate broker willing to say anything. Sure, there are some brokers that can do this. But this will not happen on a FHA loan, because many of them are manually underwritten. And they have to send your loan to that lender that they locked it with because they are underwriting your loan. A banker, different story, but the same result. This can even become difficult on today's conventional loans for many reasons.
In most cases, they use this as a ploy to get you into the door. Many wholesale companies have different delegated underwriting systems that approve your loan. Some may not approve your loan. Then what? Especially if rates go up? One big fat excuse from the loan officer, that's what.
Conclusion : Be careful on some of the paper work that you sign. Two most important forms? Your good faith estimate and the lock-in agreement form.
Your lock in agreement? Again, if you are dealing with an experienced and knowledgeable loan officer, they will give you some history of rates and how they act and react. They will make you aware of certain economic indicators, weekly jobless numbers, talk about durable goods, housing stats, and the CPI which is the consumer price index. This might all sound confusing to you. And maybe they shouldn't talk to you about these. I don't often, but I understand them and their importance to an ever changing market. Able to read the daily bond prices and the yield, which helps determine the rates. This is what you want from your loan officer. And possibly to give you guidance and advice. And not just someone telling you that floating isn't going to hurt you. Reminder : If the loan officer asks for a large lock-in fee, maybe you should just take one day to see how rates are with 3 other companies. A lock-in fee is not a bad thing, but what about the rate in itself?
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For more information on FHA loans, please go to this link. The FHA Expert You can also go to this group : The FHA Mortgage Group
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
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