Loans and Vacuum Cleaners

Getting a loan is not like shopping for a vacuum cleaner.  You can’t call Costco and say, “How much is that 30-year fixed?”  Then call Best Buy and say, “How much is that 30-year fixed?” It doesn’t work that way.

People ask me all the time, “What are rates?”  I have a standard answer, “That depends.”  But they don’t want to hear that.  They want to hear “6.5.”  It doesn’t work that way.

When you see E-Loan, Ditech, LendingTree or whoever offering a 30 year fixed for a low 6.5%, that doesn’t mean for you.  That means for the guy that meets the criteria.  If you don’t fit the criteria, you don’t get that interest rate.  But it gets people to call.  It’s called a teaser. 

They need to know what your income is and what your debts are.  Child support?  Alimony?  Taxes owed?  Credit score?  Do you have car payments?  How many are left?  How long do you expect to own the property?  How much money will you put down?  Is the monthly payment an issue?  Or are you flexible on that?  Are you okay with a pre-payment penalty (a fee charged if you change loans before a specified time period)?  Buying with a second person?  Do they have child support or alimony payments?  Taxes owed?  What’s their credit score?  You get the idea.

When determining what loan will work for you, the mortgage person will check rate sheets.  There are adjustments for everything:  your credit score, the loan compared to the value of the house (LTV), whether your loan is conforming (under $417,000) or jumbo (over $417,001).  Are you going to live in the house (owner occupied) or rent out the house (non-owner occupied)?  Is the loan going to be for a term of 15 years, 30 or 40 years?  What index will the loan be calculated on (COFI, LIBOR or MTA)?  Will you be providing all of the documentation (full document: bank statements, taxes) or stated income (no documentation)? 

Let’s say you have a credit score of 680 to 719.  You’re buying a house for $800,000.  You’re putting down 10% or $80,000.  You start out with today’s LIBOR at 4.383%.  Then you add .875% to the interest rate for having a credit score of 680 to 719 with a loan to value of 75.01-80%.  Then you’re obtaining a low documentation loan; that adds .75% to the interest rate.  Then there’s the margin, which is how the bank makes its money.  Let’s pretend it’s a World Savings loan (Wachovia), the margin, based on the LIBOR index is another 3 points (also known as a percent) added to the loan.  If you haven’t found a house yet, this whole thing is an estimate.  It will change by the time you find the house you want, write an offer and get into contract.

Let’s say you’ve now found the house, written an offer and are in contract to purchase the home.  You’ve got your loan picked out and you want to be able to count on this particular loan so you “lock” the loan in place.  For a 45-day lock, you’re going to pay .125%

Then there’s the mortgage person’s fee.  Everybody’s got to eat.  They most often charge a point (also known as a percentage).  The issue with this is that oftentimes they’re getting an incentive from the bank for selling a particular product.  Are they then charging you a point on top of the incentive from the bank?  Could be.

What does your rate end up being?  I don’t know.  I’m not a mortgage broker.  The point is that you can’t shop for a loan like you can shop for a vacuum cleaner. 

You have to be smart about who you choose.  Someone you trust.  Someone who’s going to sit down with you eye to eye and educate you.  Someone who’s going to explain the loan and your options.  You need someone local.  Someone who understands local real estate procedures and terms used.  Someone that will gladly work with the rest of your team to make your home purchase or refinance a smooth process.  

The mortgage brokers I work with know the rules upfront:  treat my clients with respect, explain the loan and the process, get them the best deal for their situation, show up on time for appointments, return calls promptly.  Don’t follow the guidelines?  They’re fired. 

That’s my job. 

Vicki Moore About Vicki Moore

Office:
RE/MAX Star Properties
282 Redwood Shores Parkway
Redwood Shores, CA 94065

By Phone:
650.888.9268

Trackbacks

  1. [...] Many people seem to interpret my questioning as a stalling technique or some kind of snake oil sales method. It isn’t.  If you don’t believe me let me show what seasoned real estate agent Vicki Moore has to say: People ask me all the time, “What are rates?’’  I have a standard answer, “That depends.”  But they don’t want to hear that.  They want to hear “6.5.”  It doesn’t work that way. [...]

  2. [...] rates depend on a lot of factors.  It’s not like shopping for a vacuum cleaner.  Basically the bigger the risk for the bank, the higher your interest rate.  In other words:  [...]

  3. [...] rates depend on a lot of factors.  It’s not like shopping for a vacuum cleaner.  Basically the bigger the risk for the bank, the higher your interest rate.  In other words:  [...]

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