Loan scenarios cannot be measured by one yardstick because every buyer is different. It is a repetitive question I get from many buyers when they are getting their loan approval or run a pre-approval. I am not a loan officer but having helped so many buyers get into homes, I keep myself educated of the loan process. As opposed to many other Realtors who neither have an understanding nor care to educate themselves.
Buyers need to understand that no two loan scenarios can be the same. The question that constantly keeps getting raised is that my friend got a lower interest rate, why am I getting a higher quote? The factors that come into consideration are:
- Your credit history- how many active credit lines you have; do you have late payments; how much debt you have.
- With the implementation of the new QRM rules, your debt to income ratio is a major consideration for loan approvals.
- How much money do you have in reserves.
- Are you borrowing money from your 401K
- Based on your credit score, what product do you qualify for.
- Your loan amount- whether you are requiring a conforming loan, conforming jumbo or jumbo loan.
Lower rates , many times, are associated with portfolio products. These products are usually with lower rates but to qualify a buyer must meet the guidelines. These loans are usually held by the lender and not sold to Fannie or Freddie. Every bank differs on the rates they can offer on their portfolio products, some could be lower than the others but their guidelines could differ too- based on the borrowers scenario.
My experience of observing the mortgage industry is that most times you see rates being flashed on mortgage websites are teasers to get your foot through the door !! I have also been a witness to a “classic bait and switch” used by unethical loan officers to entice buyers to bite the bait. When you see a 2.5% rate being quoted on a website, don’t assume that you will get that rate when you actually apply for the loan. So if your friend gets that rate and you don’t is because your friend met all the criteria for that rate !
I just had a scenario where a buyer had been so convinced by his friend that he got a very low rate from a major bank that he was not willing to accept the fact that he did not get the same rate ! Besides, the loan officer who did the loan for his friend told my client that he would do the same for him. I called this loan officer with the following questions:
- Is this a portfolio product- to which I got the answer: Yes.
- What are the minimum credit score requirements. Answer was 760
- Does the borrower need to have reserves. Answer was Yes.
- Do you have all the information about the buyers credit score, financial profile, portfolio- it was met with silence !!
Because he was taken aback that I had relevant questions and I knew that his goal was to submit a loan application in the system and then once he had the hooks into the borrower, he would come back and say sorry that the product is not available for his profile ! And the worst part was that when I inquired about the rate being quoted to this buyer on a portfolio product from another LO of the same bank, I was told that the rate and rebate did not exist !!!!!!!!
Borrowers need to understand this process and especially when it sounds too good to be true, it surely is. Measuring loan scenarios with one yardstick is one of the biggest mistakes buyers make. Choose the product that best matches your financial profile, don’t get too hung up about the rate or the rebates because you may not even qualify. Choosing an ethical and professional Loan officer is crucial, because at the hands of the wrong one your purchase can turn into an ugly experience.
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