As many Orange County home owners are finding out the hard way, getting a quote on a mortgage is not an easy thing. Or to clarify, getting an ACCURATE quote is not an easy thing. The reason is complicated, but here is why. Over the past few years Fannie Mae and Freddie Mac have instituted several pricing level adjustments that can have a dramatic affect on the final interest rate a borrower receives. FHA loans don’t have near as many “hits” to pricing. VA loans are also easier to get an accurate rate quote.
But Your Radio Ad Quoted a Rate of 4% APR on a Fixed Rate Loan?
Yeah, right. Don’t be deceived by the common practice of advertising a 5 year adjustable rate mortgage as a fixed rate loan. The the interest rate is fixed for 5 years and the loan is amortized over 30 years. With not much imagination a lender will call this loan a “Fixed 30 year mortgage”. Interest rates are lower on a 5 year program than a 30 year program, and for some people 5 years will be perfect. But make sure you are comparing apples to apples. Also, many time on these radio ad’s, the rate being quoted would cost 3 points. By not mentioning the amount in fees that is required for the low quoted rate, the lender is able to advertise a very low rate. This will generate the phone call. Their hope is the loan officer will be able to use sales skills to explain to the borrower that the rates are actually higher than quoted on the radio unless they are willing to pay the high fees that would be required for the low rates. Any lender can quote a low rate to generate phone calls if they so choose, but this practice does become on “bait and switch” in the eyes of many prospective borrowers.
What has an Effect on the Pricing of a Mortgage?
- FICO scores
- Loan to Value
- Condo versus Single Family Home
- Owner Occupied versus Second Home Versus Investment Property
- Cashout Refinance Versus Rate and Term Refinance and Purchase
- Combining a 2nd or HELOC that was not part of the original purchase transaction is considered “cashout”
- Choosing to have (or not) an impound or escrow account for property taxes and insurance. (Better pricing for those who have an account, no matter what loan to value).
- Length of time for the ratelock
If you call a lender and ask what their rate is, the loan officer should come back with a list of questions to make sure they are giving you a half way accurate rate quote. Realistically they should checks sales comparables for your home as well. If the lender just throws a quote out without asking about your credit score, property value and property type, etc, then their quote is not worth anything. You will be better off talking to a lender who takes some time to quickly research your loan and then offers a few options.
The length of time of the rate is very important. Many time lenders will advertise a rate that is based on an 8 or 15 day rate lock. The problem is, the lender can’t close a loan that quickly. Especially not a refinance, which has a recission period which will lengthen the closing time. Realistically, you will need to get a quote based on a 30 day rate lock, although even that is too short for many lenders. If you’re buying a home, your rate lock should match or exceed the number of days before closing of escrow.
So be careful when shopping for a mortgage. If you look hard enough on the internet you will always find a few lenders who seem to be offering rates lower than any other lender. But can they deliver, or do you get burned in the end? It is be worth your time to find a local Orange County Direct Mortgage Lender with a reputation to protect, who will accurately quote rates and run scenarios right up front.
Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
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