Sometimes I have buyers tell me they have found an amazing interest rate of 4.25% on the internet and that they now want to switch lenders after they already have a ratified contract and an approved loan with a trusted lender.
My response to these buyers is below...what are your thoughts?
"There is a legitimate "market rate" for conventional conforming 30 year fixed rate mortgages. The last few weeks it has been in the 5.0% range with zero points. This week it has gone up slightly due to market conditions and most of this week has been in the 5.125% range with zero points. It may trend up in the coming days due to market forces...but no one knows for sure what will happen.
This week's mortgage loan report published today at MarketWatch.com stated that the national average rate this week was 4.97% with 0.7 points, which is consistent with a zero point position in the low 5%'s range (with 0 points). See: http://www.marketwatch.com/story/fixed-rate-mortgages-fall-30-year-under-5-2010-02-11. This indicates the legitimate market interest rate range.
I can guarantee you that anything advertized in the 4.25%-4.75% range with 0 points for a 30 year fixed, conventional conforming loan is in the "too good to be true" category and inevitably ends with surprises and delays...I know because I've had clients fall into this trap before.
Last year I helped people successfully close on the purchase of 33 homes, and wrote offers on about 90 homes. Throughout those transactions I worked with about 20-30 lenders which enabled me to observe the good, the bad and the ugly of mortgage lenders. Through the experience of working with so many lenders I've learned the following:
- There is a legitimate market rate which fluctuates up and down on a regular basis
- There are websites which advertize extremely low interest rates, below the legitimate market rate. I personally feel these websites use deceptive marketing practices and fall into the "too good to be true" category. My observation is that the end result is always costly surprises and delays for buyers. If I was making a decision for my own home loan, I would never go near these companies and I certainly wouldn't refer my clients to them because I've seen the problems that result in going down that path.
- Lender's quotes on rates fall into a couple of categories: those who tell the straight scoop even if it's not what a buyer wants to hear, and lenders who tell the buyers a rate below the "market rate" in order to get the buyer's business. In the end, those buyers who fall for the trap of the lenders who give a "low" rate quote always end up with costly surprises, delays and substandard service.
- All the best reputable loan officers will be able to get the buyer the best legitimate rate available based on market conditions and will advise the client on the trends so that they can lock in the rate at the best position with the current market information available.
- In order to avoid delays which jeopardize the buyer's contractual responsibilities, I've found that the common trait among the best lenders are local, mid-sized lenders with in-house processing, underwriting and closing departments (such as George Mason/Cardinal Bank, First Savings Mortgage Corp, Acacia Federal Savings Bank and Apex Home Loans). These are lenders who have continually impressed me on purchase transactions, start to finish. These lenders shop for the best rate and terms available from all the big investors such as Wells Fargo, Bank of America, Citi, Chase, etc and provide that best rate for the buyer while being able to process and underwrite the loan in-house. This means that the loan officer walks your loan package across the hall to the underwriter and gets answers immediately. When it comes time for settlement, the loan package again goes across the hall to the closing department that can send out the loan documents to the settlement company within the hour. This flexibility ends up being a huge advantage when the inevitable last minute change is encountered.
- I've found that the interest rates and terms at legitimate lenders all fall in the same range. There is no lender that can provide rates significantly lower than any other lender. They are all in the range of the "market rates" quoted by straight talking, honest loan officers. Since all the rates at legitimate lenders are about the same, I've found that the interest rate is not the key factor that sets apart the good lenders from the bad.
- When we work directly with big national banks, we inevitably encounter delays and hassles because the buyer's loan package is sent off to a centralized processing facility in New York, Florida or Minnesota where your loan package sits in some unknown underwriter's inbox for a couple weeks. The loan officer can't pull strings because they don't even know the underwriter. Then when it comes time for settlement, the loan package again goes off a centralized closing department that needs 3 business days to prepare and send the loan documents to the settlement company. If there are any last minute changes, which often happens, that 3-day clock starts over again, causing delays which puts the buyer in troublesome situations with their moving company or with coordinating with their other settlement.
I've seen enough transactions run into these problems with so many purchase transactions, that I've come to know how important selecting the right lender can be to ensure that the process goes smoothly. I have a number of very good friends that are lenders, but I would never ever refer a client to them because I wouldn't want to experiment with an untested lender on one of my clients. In fact, have a good friend that is a very, very competent and thorough loan officer, but I don't refer my clients to him because their company relies on these centralized underwriting and closing facilities. Every time I have done a loan with him, in the final 3-4 days before closing he can't guarantee me that we're going to close on-time on the contract settlement date, which puts my buyer in a precarious situation. I work with countless lenders on purchase transactions in my daily professional job and that's why I've decided that I don't need the stress that so many of these lenders create for my buyer clients.
It is for these reasons that there are several lenders which I've come to trust to provide the best rates without surprises or delays. Neither me nor Coldwell Banker gets anything out of using these trusted lenders other than the peace of mind that I can trust my clients will get the best possible rates with no costly surprises or delays. There are certainly other excellent loan officers out there, but unless I've been through the home buying process with them several times I don't like to experiment with untested lenders with my buyer client's precious time and money.
I know that you'll research all the information available to make the best decision for yourself and I'll support you in whatever decision you make.
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