Today I want to share a story from Scott Groves with Movement Mortgage, a lender we work with frequently. One of the big questions we get from buyers when they start their home search is "Who has the best rates?" And the truth is - picking a lender is a lot like picking a real estate agent. Rates will change, however choosing someone you trust that can kind you through the (very complicated) process is something that will make a big impact in your home buying experience.
"I have to admit that I fell for it. As a home-owner, even though I work in the industry, I am NOT immune to good advertising. This week I was enticed by a radio ad promising the rock-bottom / lowest-rates available in all the land at NO fees. I was borderline offended that Movement Mortgage didn't have the best rate in town and I checked out the website of one of my competitors.
Here is what I found about the 30 year fixed rate at 3.625% the radio ad had promised:
Loan Assumptions on our First Mortgage Program as Advertised -
Disclosed rate assumes a $300,000 rate and term refinance loan on an owner-occupied single family residence. Borrower is not self-employed and owns no other properties, has a minimum 740 FICO credit score, and has a 60% loan to value with no subordinate debt. If these factors are not met, you may still qualify for a loan but higher rates may apply. Subject to underwriting approval. Not all applicants will qualify.
So there it is... the best rate in all the land that nobody can qualify for. The rate BORROWERS hear everyday on the radio, see on Google banner ads and television and get mentally pre-conditioned for is NOT realistic. Let's break down this small print further:
$300,000 rate and term refinance WITH 40% equity - Frequently refinances and purchase mortgages are priced differently. Roughly 75% of our clients are first-time buyers and require much more attention. The purchase loans for our clients tend to be much more difficult than a simple refinance, often the appraisal is setting the new high price-point for the neighborhood AND unlike a refinance, there is a time limitation on completing a purchase loan. It's not unreasonable to assume purchase loans may be priced slightly higher than a refinance. Furthermore, this offer is only valid for clients with 40% equity. When is the last time we had a buyer willing to put 40% down to get the absolute best rate?!?! It just doesn't happen.
Owner Occupied Residence with NO other financed properties - This guideline makes the radio ad rate-quote ineligible for about 20% of our buyers. Many clients of ours are buying multi-unit properties and/or own other property. More property, more tenants, MORE risk. Banks and lenders price loan slightly higher when the underwriting risk is higher due to multiple properties owned.
NOT Self-Employed with a 740 Fico - How many buyers in Souther California have one W2 and one paystub? Once a client has multiple sources of income, owns a business and/or has sporadic employment (think entertainment industry) - he/she is immediately considered self-employed and would not qualify for the offer above. Also, most new buyers (with limited credit histories) or repeat buyers with one or more credit hiccups will NOT have the required 740 FICO for the rate quoted.
Needless to say, we all need to recondition our buyers (and ourselves) to realize that mortgage advertisements are just that, advertisements. If I believed everything I read online, I would have looks like Brad Pitt, abs like a professional soccer player, and an inheritance from a Nigerian Prince. Keep that in mind the next time you want to go rate shopping based on a mortgage advertisement."