What are your Rates?

by Tom Tousignant

in Blog, Financial Safety, Home Buying, Mortgages, Refinancing

For many people the first question they ask a mortgage loan officer is, “What are your Mortgage Rates?” When I get this question, I could flippantly choose between any of these answers:

A. That Depends
A. Anywhere from 1% to 10%, what would you like them to be?
A. 5% plus or minus
A. Rates on what?

As you can see, none of these answers really answer the question that the caller really wants to know. I recently did a quick count, and I added up 30 questions that need to be answered before an accurate rate quote can be given.  Here is a list:

  • Is this a purchase or refinance?
  • If a refinance, are you looking to take cash out at closing, or just lower the interest rate?
  • How will this property be occupied? (Owner occupied, second home or investment property)
  • Where is the property located? (City, State, Etc.)
  • What is the condition of the property?
  • What type of property is it? (Single family home, condo, town home, high rise, duplex, triplex, etc)
  • How much land is the property being sold with? (if it’s a huge acreage, it won’t be a conventional loan)
  • If it’s a condo – is this condo project approved? (I don’t expect clients to know, but we have to find out!)
  • Will you have an escrow account for property taxes and homeowner’s insurance?
  • Is this property located in a flood zone?
  • How much is the property worth? (Sales price AND appraised value)
  • How much money will you be putting down?
  • How many properties do you already own? How many of those are financed? By whom?
  • What would you like the loan amount to be?
  • Will the loan be more than $417,000?  (Above that, ‘Jumbo’ loans usually have higher rates).
  • How long of an amortization would you like on the loan? (10 years, 15 years, 20 years, 30 years, 40 years, 45 years?)
  • How long of a note would you like? (for balloons… 7 year, 10 year, etc)
  • Do you need a fixed rate, or could it adjust in the future?
  • If you’re considering adjustable, what length would you like to have it fixed? (6 months – 10 years)
  • If you’re considering adjustable, which index would you like to have your ARM tied to?
  • How will you repay the loan:  Principal and Interest each month, or Interest Only for a period of time?
  • How quickly are you looking to close on this loan?
  • Would a pre-payment penalty be ok if you got a lower rate?
  • Do you have a preference on which bank services your loan? (some clients like some banks and hate others)
  • What is your credit score? (To truly be accurate, we have to run your credit, as the score we get when we run your credit is the score we use for pricing the interest rate).
  • What’s your debt to income ratio? (We will calculate this for you when we have your income and expenses fully documented).
  • After closing, how much money will you have left over, in reserve?
  • Will you be getting private mortgage insurance (PMI)?
  • If you’ll need PMI – which type will you get?
  • Will you be getting a second mortgage or Home Equity Line of Credit (HELOC) with this new first mortgage?

So, what can you learn from this list?  First, if someone answers with a number when you ask them, “What are your rates?”, recognize right away that the answer you just heard is completely arbitrary and may have no resemblance to the actual interest rate you will end up with.

Second, there may be something more than just an interest rate that matters.  A mortgage professional should be able to walk you through these 30 questions, not just to waste your time, but rather to help you understand the impact of the different answers and how they will not only affect your interest rate, but your financial future as well.  For example, a 15 year mortgage usually has a lower rate than a 30 year mortgage, but the larger payment of the 15 year term could create great hardship for you if you suffered a job loss and didn’t have adequate savings to carry you through that period.

Next time you are looking for a mortgage, make sure you have thought trhough some of these questions and find a loan representative that asks you all the questions up front to eliminate any surprises for you.

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