Let's talk about lenders and mortgage rates! We come across many misconceptions when it comes to choosing a lender and getting the best rate. Unless you're purchasing a home with cash, your lender and your realtor work hand in hand while you pursue buying a home. A good lender can make the difference in getting your dream home or causing a nightmare scenario.
Choosing a lender is much more than the rate that you can get. While the rate does matter long term, it means absolutely nothing if you can't get a house short term and a lender plays a big role in actually securing and getting someone to accept the offer on the house. We want to make this process as smooth as possible for you, all while protecting your hard earned money and we’re going to talk about how to do just that!
MYTH: It’s good to compare your rate to others around you to get an idea of what is a good one for you.
FACT: Rates are not the same person to person, because there are a lot of different factors that go into determining your specific rate: credit score, debt to income ratio, the kind of mortgage, and loan type. There are a lot of different variables your lender will help you navigate.
MYTH: Big banks are obviously the best place and your best bet to go for a mortgage.
FACT: Big banks can be great, but they are notoriously slow and infamous for not closing on time in the real estate world. They're only open 9-5, Monday through Friday and there's not a lot of nimbleness where we need it when it comes to actually closing a house. So there are certain instances where it can make sense, but just because they're offering you a certain rate doesn’t outweigh the inconvenience. Due to that reputation of not being super nimble is exactly why a seller might look at it and compare it to the other offers that they have on the table and decide that this might not be worth the extra risk that they're going to take on. It may mean losing the house of your dreams.
MYTH: My lender and realtor play entirely independent roles in the home buying process.
FACT: There's a lot of communication between us and the lender that you don't see behind the scenes making sure that they have all their ducks in the row, because truly the majority of the contract period is the amount of time that your lender needs to get your mortgage created to get you underwritten, approved, and get everything across the finish line. So much rides on them having that all together.
What does rate shopping and comparing rates look like?
Rate shopping is when you're going to go look around and compare interest rates across various lenders. The majority of the rates you look at will be within the same ballpark with small variations. If there is a large variation in a rate it may be too good to be true and it’s good to approach it with a healthy amount of skepticism. One big mistake we see people make is that they talk to several different lenders on different days. It’s important to understand that the market changes daily, therefore rates change daily, especially being in a pandemic. We've had a lot of volatile situations, this happens frequently where worldwide events or market events end up changing the interest rate. With that being said, you want to make sure that you're comparing apples to apples, that if you're talking to lenders and getting a quote from them all on the very same day.
Keep in mind that in most instances you're not going to be able to lock in your rate until you get under contract on a home. The rate that you get quoted that day is unlikely to be the rate that you actually end up paying, however it will give you a good indication of how their rates compare to others. Really, look at the big picture, mortgage rates for the last three years have been unbelievably low and are likely to stay that way generally for the next couple of years and beyond.
What else should I look for in a lender other than the rate?
A lot of that comes down to customer service and someone being competent at their job. You need someone that's going to be responsive, especially on nights and weekends, because that ends up being the time that we're most likely to place offers. We're going to need them to write us an approval letter specifically for you, specifically for that house. You're going to need someone who's going to be able to pick up your call and someone who's going to answer your questions quickly and effectively in a way that you understand. Having someone that you understand is especially important for first time buyers, because although a realtor can help you with some of that literacy, a lender is going to understand the nitty gritty of your financial situation. We're going to manage what you want to spend and they need to be on the ball in making sure that you understand everything that's expected of you to get that mortgage.
Next thing to keep in mind, checking rates and mortgages lender to lender is the big picture, but there are other fees and information you should check! It’s important to understand what are some of the standard fees that they charge, because they may vary slightly from lender to lender. There are also two interest rates, the base interest rate and another is going to be something known as APSA. That's the broader measure of the cost of the mortgage, It includes your interest rate, but it also includes all the other costs like broker fees, discount points, closing costs, and that's going to be expressed as a percentage of your loan. Instead of looking at this one, specifically charging me an underwriting fee that's less than the other, it's an easy way to compare percentage to percentage what people are charging just to take out the mortgage itself.
How does my lender affect my offer when purchasing a home?
In the current scenario that we're in, in Dallas, Fort Worth and likely a lot of other markets it's extremely competitive, so a seller is able to choose from many different offers on their home. They're going to look closely not only at the purchase price, but they’re looking at the highest offer that can close. The seller needs to know that they're actually able to get that dollar amount and they can't put it all out on the line for a transaction that they don't think is going to close. It matters that the lender has a solid reputation of doing enough legwork up front that the people that they are bringing are vetted and qualified. If they say this person can purchase a home, we've got to be able to trust their word on that and some lenders are better than others at qualifying on the front end.
Will shopping for lenders have a negative impact on my credit score?
Although you should be particular about your credit when looking to buy a house, the good news is the credit bureau knows that you're likely to rate the shop. So you actually have a forty five day window from the first time one of the lenders pulls your credit to shop multiple lenders. The credit bureau basically gives you a forty five day grace period where any mortgage lender that pulls your credit is only going to count as one inquiry to your credit. Now, if you go open a new credit card, that's going to be its own inquiry. This is specific to shopping your mortgage rate. Obviously, after you do this shopping and you kind of get a general sense of your interest rate, please don't go buy a car on or anything else larger that will change your qualifications for a mortgage, because that will change the approval that's given by a lender.You want to be very aware of your financial picture and cautious when you're ready to buy a house.
When do I need to choose a lender?
Ideally, you need to understand what you're pre-approved for before you even go out and look at houses. A lender isn’t just inquiring about the amount of house that you could qualify for, but the amount you can afford monthly, your household budget, and if you can afford to buy a house! There are a lot of different people who will give you the same ballpark number that we can hit the ground running with, but when it comes time to make an offer it's going to make your life a lot more difficult if you don’t have one pinned down, because there are a lot of things that need to happen quickly as soon as we get under contract.
How do I know which lender is right for me?
Not all lenders are going to be the right fit for you and that's okay! There are plenty of lenders out there. You've got to have trust and confidence in this person and know that they're going to get the job done right for you. We want it to be a good fit for you, because your realtor and your lender are essentially co-workers to get the deal done and connected in what you need to get you to your end goal of getting a home.
Ask us about local lenders we trust!
We hope this helps you understand how to shop for your lender and choose the one that will be best for you. A good way to start that search is to ask for recommendations, feel free to reach out to us for some names of local DFW lenders that we trust.
For more mortgage and lender related information, go back and listen to Episode seven. Am I ready to buy a house? And Episode twenty The Hidden Costs of Buying a Home. It's our honor to support you as you make the largest financial decision of your life!
Until next time,
Brianna & Keelie