If you are financing your purchase, getting a mortgage for your new home, then you will also need a lender on your buying team. A great lender can mean the difference between a bumpy, stressful ride, or a smooth jaunt to the closing table.
The agent you choose to work with will have recommendations on lenders. These will be lenders that have successfully gotten past buying clients to the closing table with as little turbulence as possible and great communication. Your agent may also have advice on the lender that you have already been pre-approved through. Pay attention to what your agent has to say about your lender. Conversely, if you trust your lender, pay attention to what they may have to say about specific agents. The focus here is to ensure that the two key players on your home buying team not only communicate well, but also respect one another enough to give you as smooth an experience as possible.
As with choosing your agent, here are four questions that you should be asking your lender.
What are Mortgage Interest Rates Based On?
While many folks, and lending professionals may say the 10-year treasury note, this is not the case. While the 10-year treasury note does frequently trend in the same direction as mortgage interest rates, mortgage backed securities (MBS) is the only correct answer. If a lender tells you 10-year treasuries, go find another lender to work with. DO NOT work with a lender that eyeballs the wrong market indicators.
What May Cause the Mortgage Interest Rate to Adjust Next?
The cause may be anything from a jobs report, to the Federal Reserve sneezing. A sharp lender will be able to have this discussion with you and advise you on the indicators to be paying attention to. Likely, they’ll even have some information for you in a weekly or monthly newsletter.
What Impact Does the Federal Reserve Interest Rate Have On Mortgage Rates?
Understand that the Federal Reserve’s Fed Fund Rate is not tied to your mortgage rate. The Fed Fund Rate is used to set interest rates for credit cards, auto loans, lines of credit, etc. Frequently, mortgage rates move in the opposite direction of the Fed Fund Rate.
What’s Affecting the Market Today? What Will Happen in the Near Future?
There is a direct relationship between MBS/Mortgage Bonds and your mortgage interest rate. Any lender that can not discuss and describe this relationship is not worth your time, let alone your business. Find another lender to talk with. Or ask your agent whom they recommend.
There are some additional points about choosing a lender to work with. While the real estate agent will work with you to winnow your home search to a manageable number of potential homes, a lender will work with you to choose the best mortgage product to meet your housing needs. So, if you are going to be about the business of shopping your lender, keep these points in mind:
If It Looks Too Good to be True, It is
While this may appear like common sense, all too often lenders and agents watch as buyers cast about for the best rate in the market place. Frequently, the search ends with not just a lower interest rate, but also some other hook that was not immediately realized; term, pre-payment penalty, points, lock in period.
The Old Adage, “You Get What You Pay For,” Applies
Most lenders will be competitive on rates and fees. When looking to save a few dollars on the financing of your home, understand that costs can be indicative of service. If a lender’s cost is well below all the others you have talked with, there is likely a reason for this. All too often, I have seen this reason be a lack of systems and strategy for getting a well-qualified buyer to the closing table.
Compare Apples to Apples
Be sure that when you are comparing lender services and costs that you are comparing the same items. Simply going to the bottom line does not give you the complete picture. A great interest rate may incur higher costs. Lower fees may be an indicator of a higher mortgage balance as the fees may get rolled into the mortgage. An excellent loan officer will be able to balance your needs and goals against the available mortgage products, and explain the pros and cons of each to you.
Interest Rates Change Daily, and Hourly
When you are rate shopping, another thing to keep in mind is the time that you are quoted a rate. Unless the lenders are quoting you from the same time of the day, your interest rate can be different. Additionally, the length of your rate lock can also affect the interest rate.
As with choosing a real estate agent, choosing your mortgage lender is a key decision in your purchase process. Often, the mortgage lender can be the key source of frustration, if there is unclear or little communication.