Easy to shop for a mortgage?

Posted: May 30, 2007 8:46 AM

So many people think a couple of calls, a quick look on the Internet and a word or two from their brother-in-law and they have figured out who has the great rates. Sorry, it isn't going to happen that way. First of all I have been in the mortgage business over 1.5 decades and I haven't the slightest idea who has the best rates, today, yesterday or even tomorrow. But the major problem with that statement is it is irrelevant because you could care less who has the best rates you only want to know who has the best rate for you and your particular loan. Therein lies the real problem.

What is your loan? And how can you find out who has the best rate for it, without really knowing what "it" is? There are too many factors making up "it" of which the typical borrower hasn't any knowledge. So lets begin this dissertation with the factors that help make up your loan. There is the size of the loan which has it falling into one of three categories: conforming (up to $417,000 for a single family residence and higher for a duplex, triplex or four-plex), jumbo over the $417,000 and super jumbo which can begin at $750,000 or $1,000,000 or $1,250,000 or even as high as $1,500,000 with some lenders. That really makes it tough to categories the bigger loans.

Next there is the loan to value: the amount of the loan divided by the value of the house.

If you guess or use a service such as Zillow you could be shopping for the wrong loan.

Some lenders give credits if your loan to value is 60% or 65% or even 70% while others will charge you if your loan to value is 80% or over.

Credit score: Not the one you can pull yourself but a lenders credit which is usually lower. If you 're too low (under 540) you won't get a sub prime loan these days, or if you are high enough, over 720, you might get some credits.

Qualifying is very important. Can you use income documentation or do you need to be a stated income borrower? Do you have to be no documentation because of employment problems and in any of the above can you show the needed liquid assets for reserves?

How about the type of property, single family or units; primary, second home or rental?

All of these get different charges or credits when figuring the pricing of the loan.

Now you hear a loan advertised and what do you do? Do you assume they are talking about you with all of the above figured in? When you start your calling around do you state all of the qualifications and ramifications of the various categories, or do you just look at the big picture and figure it will work out? And as I said above what if your assumptions are wrong and you are quoted a rate and cost that can't be delivered because of your erroneous assumptions?

Now lets talk about the lenders. You call everyone and you do it on the same day because rates can change from day to day and you specify the loan you want. You even give everyone the same specifications down to a gnat's whiskers and you get the rates. Let us say for example a 30 year fixed for $500,000 and they ask you what your purpose is: purchase, rate and term or cash out. You're unsure so you say rate and term, meaning no cash out. You aren't interested in interest only and make that known. You are given a rate and then you compare all the rates and you're pretty sure you have found your deal.

You just may have found the best lender for you unless of course you change your mind on the type of transaction and move to a cash out loan. Then you change the type of loan as you realize that a 20 year fixed is better for you and by paying off some debt you are able to afford the 20 year fixed. Do you now still feel you have the best possible rate for you? If you do then you shouldn't have bothered with all to the above because no one lender has the best rate for every type or loan, nor does one lender have every type of loan. Unfortunately that is a true statement and why loans take a relatively long time to fund because of the ever changing mind of the borrower and the need to get the borrower the best rate which can mean pulling the loan from one lender and sending it to another.

Let me conclude with the fact that on any given day, week, month or year a lender may come out with a special on one or two types of loans, types of transactions, types of properties or for particular characteristics of borrowers and upset all the work you have put in to attempt to get the best loan for you.

My suggestions is to find the best person for you who you feel has the knowledge, the integrity and the drive to get you about as good a loan as you can get and save all of the frustration and aggravation you would have had to go through to get to a place that may not be nearly as good as your loan officer could have done for you.

I had lunch with a long time friend of mine years ago who had gotten a loan from a known bank a year or so earlier and he was telling me how good he thought it was. I asked him how he knew and he thought for a while ...... and he couldn't answer.