Interest Rate You’ll Actually Get
As a professional, my philosophy with rate shoppers is, “do you want the rate today, or do you want the rate you’ll actually get?”
While rate is an important factor, every homebuyer needs to understand rates change every day, and on an active market day, rates can change by the hour depending on which direction mortgage backed securities are moving. The fact is, all conventional investment money comes from three sources (Fannie, Freddie and Gennie ).
Since mortgage money comes from mortgage-backed securities, homebuyers should recognize that money costs every investment lender basically the same amount. This means on any given day, rates could vary up to .25% depending upon when a lender updates their rates to reflect changes in securities market.
Rate hedgers, in our industry, have a great advantage as they quote rates based upon where they think the market is moving since no rate is guaranteed until it’s officially locked. This is a very common practice used by the type of person that will take advantage of clients. However, try locking a rate with a hedger and you’ll be surprised at the points, or added fees, that show up after the fact should the rate hedger be wrong on his market projection.
A buyer who rate shops may be getting quoted today’s rate from one company, tomorrows rate from another, and a bet on next weeks rate from a third. It’s like comparing apples, to oranges, to pears and the client will never know what they’re getting much less whether the mortgage product they’re buying fits their needs.
In addition, there is a great misconception about closing costs. Home Buyers need to understand that lenders only have control over lender fees. Yes, in fact, the more challenged your credit is, the higher these fees will be. However, for homebuyers with good credit (Typically a 620 mid FICO™score or above), using standard products and underwriting, it’s silly and misleading to say, “shop closing costs” as the home owner/buyer/seller typically has control over 75% of all the fees associated with closing their loan! Can you imagine? Lender fees, in most instances, equal less than 20% of the total costs to close, or in real dollars around $800.00 to $1200.00 depending on the program type. The rest are just estimated because they are third party charges outside the lenders control.
With credit challenged homebuyers, you can use the FHA loan program to buy your home for far less than any alternative loan program available. Your closing costs typically will be higher, however, your rate will be equal to the prevailing conventional mortgage rate. Credit challenged home buyers need to ask themselves is it better to pay 2% more in closing costs and get a 6% fixed 30 year loan, or pay the same 2% origination and get a 9% adjustable rate mortgage with a short fixed period.