Do Loan Programs matter?
Of course they do! A skilled loan officer’s primary responsibility is to match the right loan program to a borrowers specific needs. This is an essential element to any great mortgage fit .
Why is it when I pick up the newspaper or look online, I notice that all the advertised mortgage rates are very close to each other?
The reason the rates are similar is because regardless of which lender a Borrower goes to, the Borrower and the property must comply with the same established guidelines in order to qualify for a particular interest rate. These guidelines regarding income, assets, credit history and property valuation are set by mortgage aggregators (e.g. Fannie Mae, Freddie Mac, FHA, etc.). These aggregators are ultimately going to buy most mortgage loans originated by lenders and package them together to sell as secured investments (i.e. Mortgage Backed Securities). In sum, lenders are advertising the same interest rates because they are selling to the same aggregators.
Why am I not getting that advertised mortgage rate?
You are not reading the fine print! This is referred to in the industry as “risk -based pricing.” Lenders price mortgage offerings based on risk associated with:
1. Occupancy – Is a home a primary residence, second home or investment property? Better rates are available for owner occupied residences as opposed to investment properties.
2. Loan to Value (LTV) - Pricing of loans is on a sliding scale: the best rate is at 40% downpayment or more and the person with the lowest down payment generally pays more.
3. Credit Score – Having better credit gets better rates.
4. Loan Size - Smaller loans generally end up paying more.
5. Subordinate Financing – If you are doing a first and second mortgage at the same time, expect to pay more.
6. Cashing Out – On refinances, expect to pay more if you are taking equity out of your home.
7. Days offered on the Lock – Most locks offered in the newspaper or online are offered for 30 days. Expect to pay more the longer the lock you request.
What is APR?
APR (Annual Percentage Rate) is different than a note rate (i.e. mortgage rate). APR is a rate calculation that tries to factor certain fee prerequisites or costs a borrower must incur (appraisal cost, bank fees, title charges, etc.) prior to securing a specific mortgage rate. APR is required by the Federal Government to try to assist borrowers evaluate all mortgage offerings.