After reading this column for over twelve years, I sincerely hope that is not the first question you ask when shopping for a home loan. Here’s a refresher on why “the rate” is an elusive thing to pull out of thin air, and why there might be more important factors to consider when choosing a lender.
There’s a reason we need to have a conversation about what you want to accomplish in your transaction before quoting figures. When your lender reviews a rate sheet, there are a whole bunch of details that determine what loan program works best for you. Add to that different pricing structures specific to how you qualify, and it becomes more art than science to quote a rate. The “right” rate on the wrong financial strategy could cost you lots of money over the long haul.
For anyone who is curious, this is just a partial list of what goes into “the rate”:
- Conforming or government loan type (USDA, FHA, VA)
- Fixed or adjustable rate (and margins, and caps)
- Loan term (30, 20, 15, 10)
- Loan amount, especially if less than $100,000, or greater than $417,000
- Any second mortgage wanting to subordinate
- Occupancy status (primary, vacation, investment)
- Subject number of units (single family, duplex, triplex, quad)
- Number of other properties already financed
- Down payment, as a percentage
- Amount of equity, or not
- Mortgage insurance, or waiver (ask me, this part is amazing)
- Credit score (better than 740 gets the best pricing)
- Cash out or rate and term, if refinancing
- Fannie Mae HomePath eligible?
- Impound account, or not
- Length of the rate lock (7, 10, 15, 21, 30, 45, 60 days)
- How many points you want to pay (or do you want a closing cost credit)
- Where is the market headed today (lock bias or float bias)
If your lender is not asking you sufficient questions to determine the answers to the above, or when you see or hear a rate in an ad – There is no way that number could mean anything. It takes experience and skill to match a consumer with a loan program and pricing structure that best meets their needs.
Tammy Engel is your local Mortgage Advisor and has been named ‘Best of Tehachapi’ in mortgage lending. Contact her at 661/822-REAL for help with purchase, refinance, and reverse mortgage.