My first post on this blog deals with one of the most challenging aspects of buying a home.... arranging the mortgage financing. Now more than ever it is imperative that buyers choose their mortgage lender wisely.
It is understandable that when shopping for any goods or services, you want to receive the lowest price possible. Shopping for a lender for your new home purchase is no exception. But be cautious; by having unreasonable expectations you may make it easy for an unscrupulous sales person to mislead you or even take advantage of you.
Knowing the right questions to ask and getting things in writing before submitting an application are your responsibilities and your best defense against deceptive practices, misleading information, and misunderstandings. Do not hesitate to consult your attorney after you have done your homework and are ready to make a decision. If you are not getting firm answers to your questions, are put under pressure to make a decision or an appointment, or cannot get rates, fees, and terms in writing, then you should find another lender.
Below are a few items to be aware of:"Low Balling"The practice of quoting a rate that may be 1/4% lower than the actual rate the lender currently has available, to induce a customer to set up an appointment, is referred to as "Low Balling". When you actually meet with the loan representative, they may tell you that rates have gone up, or suggest you let the rate "float." When the rate floats it is not locked and could be higher or lower at closing than at the time of application. If a rate is not locked the lender has no obligation to close at the rate being quoted. If you insist on locking a "low balled rate" you will be told that you must pay points, an origination fee, or a lock-in fee that is non-refundable.
"No Cost" Loans. There are no free lunches or "no cost" mortgages. The costs are reflected in a higher interest rate than the lender's regular rate, usually 1/4 to 3/8% higher. In addition, there are some fees that the lender will require you to pay. Paying a higher rate in lieu of paying fees and closing costs may make sense when you would not be able to recoup your expenses within a few years at the lower rate. This is likely to be the case for loans under $100,000.Some states, such as California, do not permit the use of phrases like "No Cost" in connection with mortgage advertising. When you are seriously considering a specific loan request that the rate, terms, rate lock and all lender related fees be put in writing. This will reduce the possibility that a salesperson is failing to fully disclose information. Compare the written quote to what was explained verbally and make sure it includes all relevant information.
Origination Fees. Many lenders charge origination fees equal to 1/2% to 1% or more of the loan amount. Some will quote a "0" point loan but fail to mention origination fees.
Rate and Points. Many advertised or quoted rates often require the payment of several discount points that are not mentioned in the ad.
Rate Locks. Most lenders will "lock" your rate for 60 days from the date of application. In most cases this allows you a sufficient period of time to close and be assured that your loan will be at the rate you applied for. Some ads and quotes may only be good for 15 or 30 days or may not be locked until a written approval is issued. Even for refinances you should insist on quotes that can be locked for at least 45 days. While it is possible to close in less than 45 days, don't count on it. Ask for a written rate lock agreement.If your closing is more than 60 to 75 days away, don't initially disclose that information. When the sales person knows your closing date exceeds the period that a rate can be locked, they can quote an unusually low rate (see "Low Balling") in order to get you to submit an application. The sales person knows they will not be obligated to deliver on their quote thereby creating an "opportunity" to mislead.
Rate Lock or Commitment Fees. It is not unusual for lenders to charge a rate lock or commitment fee. When charged it is normally equal to ½% of your loan amount and is refunded at closing. If you withdraw your application to switch to another lender you risk losing this fee.
Finally, choose a lender that you know will be around when you need them. Many lenders and brokers have folded over the past year or so and many more are at risk. Be sure the lender you choose will still be in business, and able to honor your mortgage commitment, when it comes time to close your purchase.
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