Shopping Lists
Appendices E and F have shopping lists for you to use while calling lenders for their rates: One list is for fixed-rate loans and one is for ARMs. Figure 5.7 shows you a blank fixed-rate shopping list.
Try to make all your telephone calls to lenders within one or two days. If you spread the calls out over a week's time, the rates may change by the time you have finished canvassing all the lenders on your list. Also, plan to submit an application immediately after you have canvassed the lenders. Again, if you wait a week, the rates may change. Some lenders may give you two or three quotes for the same loan but with different combinations of rate and points. Write them all down and decide which is best later.
If you are refinancing be sure to ask the lender for a loan with just one or two points so that your payback period is shorter. Most lenders will be able to quote several combinations of rate and points. If you are buying a home and do not have much cash for the down payment and closing costs, you should also ask for a loan with low points. This reduces your closing costs and the cash required to buy the home.
Locking In a Rate
In most markets, lenders will allow you to lock in the quoted rate and points that are available when you submit your application. Usually, lock-in commitments are good for a period of 45 to 60 days. Even if interest rates increase while your loan is being processed and approved, the lender will close your loan at the lower rate that you locked in earlier. If rates have fallen, most lenders still will expect you to close the loan at the lock-in rate.
Problems arise when lenders are unable to process and close a loan within the lock-in commitment period. In 1993, for example, lenders were flooded with loan applications from homebuyers and homeowners seeking to take advantage of low interest rates. Many lenders, appraisers, title companies, and settlement attorneys had a 90- to 120-day backlog. Lenders were unable to close loans within 60 days. Many homebuyers' lock-in commitments expired, and they were forced to close their loans at higher rates. During periods of exceptionally high loan volume, some lenders may temporarily stop offering lock-in commitments.
Question: If you cannot lock in the low interest rate that you find by canvassing lenders, what value is there in shopping around?
Answer: Lenders with below-average rates today are more likely to have lower rates in three months than lenders w ith higher rates today. If lenders in your area are not offering lock-in commitments, the value of shopping is diminished but not lost. Just as discount stores have lower prices than full-service department stores, some lenders have lower-than-average mortgage rates on an ongoing basis.
Question: Are lock-in commitments free?
Answer: In most markets, lenders will not charge a nonrefundable fee for locking in your rate if you are purchasing a home, but in some markets they will. It is not uncommon for lenders to charge a lock-in fee for refinance loans. Some lenders will charge one-half to one full point more for a loan with a 60-day lock-in commitment. Others factor the cost of commitments into the interest rate and number of points that they charge.
Some lenders offer a 120-day lock-in commitment for a nonrefundable up-front fee. This might be attractive to you if you cannot settle for three or four months, but would like to lock in a low interest rate.
Even when a lock-in commitment is available and the lender is able to close your loan within the lock-in period, you may not want to lock in a rate. If you feel strongly that interest rates are falling, you may want to wait until closing to set your rate. If so, do not lock in a rate.
Mortgage Brokers
In shopping for a mortgage, there is little difference between mortgage brokers and mortgage lenders. Mortgage brokers take your application and find a lender for you. They provide a very use lid service. They know which lenders have the most competitive rates and which lenders have the most relaxed underwriting standards. Often, they can do a better job of shopping than a consumer who does not have the time to do it thoroughly.
However, some lenders do not accept application packages from mortgage brokers, and others tack on an additional fee to their ordinary rates to pay the broker's commission. Some brokers even add their own fee on top of that.
FIGURE 5.8 Step 4: Compare Your Choices
Bottom Line on Mortgage Brokers. If a mortgage broker with a good reputation can get you a loan at a lower price than you can find yourself, use them.
