Everyone tells home buyers to shop around for a mortgage loan. But comparing mortgage loans is not a simple task. It’s not oranges to oranges or apples to apples, says Steve Smither, senior loan originator/sales manager at One Mortgage, Inc. in Palatine, IL.
“It’s very difficult to tell the differences from one loan to another,” he says. “It’s all about how much is being paid on the back end of the loan when that loan is sold to Wall Street.”
The Federal Trade Commission tells mortgage shoppers to obtain information from several lenders and to make sure to get current mortgage interest rates and to ask whether the rates being quoted are the lowest for that day or week. You’re also supposed to ask about the loan’s annual percentage rate (APR). The APR takes into account the interest rate along with any points, broker fees and certain credit charges you may have to pay.
Mortgage Rates Vary Only a Little From Lender to Lender
Scott Sheldon, senior loan officer at Sonoma County Mortgages in Santa Rosa, CA., says that in today’s mortgage world there really isn’t a big difference in the interest rates given out from one lender to another.
“Most lenders will give a quarter to three-eighths of a percentage point within Freddie Mac’s daily mortgage rates,” he says.
Freddie Mac, a neutral third party, is the best barometer of what the rates will be, Sheldon says. You can catch those on the Freddie Mac website through its Primary Mortgage Market Survey, in which lenders are surveyed each week on the rates, fees and points for the most popular mortgage products.
Sheldon believes your best option is to pick a person that you feel the most comfortable with and who is the most responsive, communicative and you feel will provide the most clarity, rates and how the numbers interrelate.
“You just won’t see one lender have radically priced different rates these days,” he says.
The reason for that is that lenders can no longer give great deals to their clients, even if they wanted to. When the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) came out, it changed the lending market. Lenders can’t adjust what they make based on their client, Smither said.
“The free market and free enterprise have gone away in the lending world,” he says. “We can’t change what we (loan officers) make. We make the same no matter what the loan. The company can change that, but the loan officer cannot. I can’t give a friend a break. The company might be able to give them some credits back such as reduce some of the costs associated with closing costs,” Smither says.
Challenges in Underwriting
Sheldon adds that the underwriting software used today has such a definite checklist that it sometimes doesn’t account for certain situations.
Case in point, he says, you could have someone looking for a $400,000 loan. The person has $1 million in the bank and an 800 credit score with a great income. However, their debt-to-ratio income is 46 instead of the required 45.
“That person will have a heck of a time getting a loan because he doesn’t fit into the checklist,” he says.
On the other hand, someone who has gone through bankruptcy, has a 620 credit score and a pattern of not paying their bills and have a debt ratio of 50 can get approved for an FHA loan, a government sponsored program offered by most lenders today.
Understanding the Mortgage is Important
Smither says that part of the problem is that consumers get confusing information during the whole process of trying to buy a house — especially in the disclosure forms with the terms and costs of mortgage loans.
Congress directed the Consumer Financial Protection Bureau to change those forms by August 1, 2015, to simplify things and reduce paperwork. The new forms will include a loan estimate, which should be given three business days after an application. It should use clear language and design that will help consumers understand complicated mortgage loan and real estate transactions.
Until then, Sheldon and Smither advise people to do a lot of homework on the different types of loans and the experience of the loan officers before choosing a mortgage.
“The interest rate and payments are important,” Sheldon says, “But the ability to qualify for that checklist is where you should be focusing on.”