How to Shop for a Mortgage Loan

First Time Home Buyers in North Carolina often ask us questions about mortgage loan, and mortgage rates – because no one wants to pay more than you should!  Here are some practical tips on how to shop for a Mortgage Loan, that have been written based on our years of experience in the mortgage business.

So you’re writing a contract to buy a home in North Carolina,  and now it’s time to “shop for a mortgage loan!”  Yippee!

Do you know what questions to ask?

We’ve been in the mortgage business for over 20 years – and the only thing most people know to ask is – “What’s the Rate?”  While that’s a great question, it’s kinda’ like going into a shoe store and asking if they have any shoes in a size 9.  Just shopping the mortgage rate is not necessarily going to get you the best price.

And what is the “best price” anyway!?!  When you are trying to figure out how to shop for a Mortgage Loan, that’s an important question to figure out!

Most of the clients that call us speak to my husband, Steve.  The first thing he ALWAYS says is, “Hey, thanks for calling!  So you were referred to us by (insert name of friend, co-worker, agent, builder)?  That’s great!  So, tell me a little bit about what you’re trying to do.”

I share an office with him – and after listening to him say this for like the 90th time I turned and looked at him saying, “THEY WANT TO BUY A FREAKIN” HOUSE!”  He wasn’t amused…. but once calmed down he explained to me why he asks that question, that way (and why it will help you when shopping for a loan).

Most clients answer the question of what they are trying to do one of these ways…

• They want to buy or refinance but keep their payments at a certain amount
• They want to buy or refinance but they don’t have a ton of cash to work with
• They want to buy or refinance but they can’t verify all of their income
• They want to buy or refinance but they need it to happen in like 5 days
• They want to buy or refinance but they think they have some credit issues

Each of these items will help the loan officer determine which mortgage program (like those different kinds of shoes) will work for you!  The PROGRAM will then help us get to a mortgage interest rate… and knowing your credit score and how much money you want to part with for closing costs will determine your rate.

So let’s assume you figured out which program you are going to use to finance your home – YIPPEE!  One more step in the process!

How to Shop for a Mortgage Loan

Now you can just call loan officers and ask for their rate on that program and those terms with your credit and compare – it’s not even that easy!

You want to be certain that you are working with an experienced loan officer.  The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of doing more than just quoting you a rate.

So here are some other questions for your loan officer:

What are mortgage interest rates based on? The only correct answer is Mortgage Backed Securities or Mortgage Bonds.  Some loan officers “benchmark” or “ballpark” the direction of rates against the 10-year Treasury Note…. and while the Mortgage Bonds have historically followed the 10 year Treasury Note, they have also moved in completely opposite directions – especially recently!  You don’t want to work with a loan officer who has their eyes on the wrong indicator!

What is the next Economic Report or event that could cause interest rate movement? A seasoned loan officer will have this at their fingertips and let you know the historical significance of the report.

When The Fed “changes interest rates,” what does this mean… and what impact does this have on mortgage interest rates? The answer is not obvious.  The Fed has some impact over SHORT TERM rates, like those on your credit cards, however very little actions the Fed takes (especially recently) has created a lower movement of Mortgage Bonds.  Because of the “bad name” associated with Mortgage Bonds last year in the SubPrime market, fewer people are purchasing these bonds.  (If you have other questions about this just call us!)

Do you have access to live, real-time, mortgage bond quotes? Many loan officers wouldn’t know how to read real-time bond quotes.  They read the rate sheets given to them by their price desk.  If a lender cannot explain how Mortgage Bonds and interest rates are moving in real-time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper.  Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday?  No.

Once you are satisfied that you are working with a professional mortgage adviser, here are some other secrets to shopping effectively for your loan:

If it seems to good to be true – it probably is. We’ve already discussed the fact that loans are priced from Mortgage Bonds – they all come from the same places, and if you are speaking with someone offering you a something that sounds really unbelievable… if probably is.  You need to ask some additional questions about extra fees, the length of the lock-in and any pre-payment penalties.

If the loan officer won’t call you back about that great deal he quoted you on Monday night – there’s a reason.  The “deal” is no longer available, because they were quoting you something when they couldn’t really lock you into the rate… Did they provide you with a Good Faith Estimate of the costs?

You get what you pay for!  If you are looking for the cheapest deal out there, understand that you are placing a highly important process into the hands of the lowest bidder. (If you’ve ever had a cheap hair color job or a cheap haircut – you know what I mean).  All too often, you don’t know until it’s too late that the cheapest isn’t BEST.

But if you really want the cheapest quote – head on out to the internet, and we wish you good luck.  Remember that missed closing dates in NC can now mean a FINE to the buyer.  Most internet companies do not operate in the State and do not know our laws – or even how we close loans.  If someone mentions closing at the Title Company – you know you’re dealing with someone who’s not from here, and some delays and differences in quoted closing costs and actual closing costs will likely occur.

Understand that Mortgage Interest Rates and Closing Costs go Hand in Hand. When someone asks me for a mortgage rate – I ask them which one they want.  I’m not being sarcastic (well, okay maybe a little) but we have interest rates from 2% to 11%.  It depends on the program and the amount of money you want to pay out of your pocket.

Many first time home buyers want the smallest amount of closing costs (so they can buy a hot new leather sofa!) and will therefore take a slightly higher interest rate – so that the lender pays the closing costs.  A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Not Every Bank Offers ALL North Carolina First Time Home Buyer Programs: Our Bank offers the MCC Mortgage Tax Credit Program, We offer ALL of the Affordable Down Payment Programs, and we can help you through the Grant Program that will help you buy the house of your dreams!  Additionally, we offer mortgage loans for folks who don’t have perfect credit, in fact we can close mortgage loans for those with middle credit scores below 620!

Understand the Rate Lock and the Extension Fees Charged if you miss your closing date.   Your mortgage loan is being locked in for a specific period of time – after that date, there are fees and fines assessed.  Understanding what those fees are, and who has to pay them – can save you THOUSANDS of dollars.  Let me give you an example – let’s say that you buy a house and use a USDA Home Loan to finance it.  That mortgage loan must go TO the USDA Home Loan office for them to underwrite the file.  Today, they are almost 3 weeks behind.  At times last year, they were 7 weeks behind.  Well, you can’t buy a house with a 45 day lock-in and expect to meet that date if USDA is running that far behind!

So our advice is to be smart.  Ask questions… but don’t just ask what the rate is!  Call Steve and Eleanor Thorne with Connect With Us on Facebook, 919-649-5058