I recently met with a first time home buying couple who were looking to get pre-approved for a potential home purchase. We met in my office in the late evening, and spent a great deal of time discussing budgeting and the long-term financial impacts of homeownership, well after we got through the pre-qualification process. This was actually our third meeting, each taking substantially longer than the previous session, which is understandable because they were getting very close to submitting an aggressive offer that they were sure would be accepted.
After we got through the discussions, it was time to get down to the nitty-gritty details of interest rates and loan fees. Gracefully, they let me do all the talking - hearing everything that I had to say as it pertained to the rates and fees that I was able to offer them. I plugged in the details of their circumstances, and told them exactly where they might see improvements, if some of the recommendations we discussed came to fruition. When I was done, the woman plunked her iPhone down on the desk, and showed me some random website with some mortgage rate quotes that I haven’t seen in months. She wanted to know why my rates were a quarter of a point higher than what she was seeing online. I don’t say this mockingly, as she wasn’t challenging my quote, but merely asking why it was different than what they were seeing online. (In fact, after our meeting, I asked them if I can write an article about our discussions, and they happily consented knowing this would be helpful to others in the same situation).
I took out my phone and typed on it for a few seconds, and asked them to read what I presented in front of them. I directed them to a past article in which I was prominently featured by some notable websites and newspapers including USA Today and The Bergen Record. In it, the discussion was why online mortgage rates are never what you think, and how to read through the often false and misleading online mortgage rate quotes that might seem to be very appealing. In the article they explain how in the world of online rate quotes, what is being displayed is merely the “published rates” and not the “actual rate.” Many times an additional fee is required to earn the published rate. For example, in a recent weekly survey by Freddie Mac, the average rate noted in the report required borrowers to pay a 0.50% discount point — or one-half of 1% of the total loan amount. On a $400,000 loan, that would mean you would pay $2,000 upfront to get the published rate. That fee is in addition to the other required bank and third-party service fees that are required on all standard loans.
The article explains how a borrower’s credit score, their percentage of downpayment, as well as other loan-level details have a direct impact on the rate or the amount of fees that an applicant might pay to obtain a mortgage. There are other recommendations that I shared in the article, as well as a few “secret questions” that I usually divulge to my clients, to help determine how to get the best possible rates and terms. Instinctively, they thought I was insulted by the insinuation, but I quickly explained that it’s quite the opposite. I explained to them that I am always excited when people give me new research and perspectives, as I am able to learn from what’s “out there” and incorporate it into my recommendations and how I guide applicants along the way.
They finished perusing all the materials that I presented to them, and then I asked them if we can go back to their websites with the “lower rates.” We pulled it up on my computer so that together we could probe a little further about the specifics of their circumstances. For starters, their credit score was 40 points lower than the default score in the scenario. Secondly, the downpayment was also different, as they were getting a loan with less than 20% down. Finally, they knew for this particular house, the sellers would not be able to close for at least 90 days. A few key strokes later and their “new published rate” was over one-half of a percentage point higher than what I offered them, with a $2,200 add-on fee on top of it all. Quite the difference. Similar to the search for the 10 pieces of bread on the eve of Pesach – you might know what you are looking for, but that doesn’t mean you know where to look! Have a Happy Pesach! Special shout out to my staff for all of their hard work and a wonderful start to the busy spring season.
By Shmuel Shayowitz
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]