Let’s Talk Mortgages

This is Mary Beth Harrison with Dallas Native Voice and today I wanna talk about mortgages. So many of my buyers want to shop around and find the best rate. Well, that’s all well and good and certainly something that should be done, except there’s a little bit of a fallacy in that.

Rates change every day, first of all, and you might not be asking quite the right questions. So, I wanna share a few things with you and- and how mortgages work and why lenders think like they do and ask the questions that they do.

First of all, you have the ability to shop for a mortgage, in other words, give your credit information to two or three different lenders and see what each of them offers, without it affecting your credit score. That’s a consumer issue that allows you to not just get stuck with one- one person when in fact you could’ve shopped around.

Know that you can shop around for a mortgage to two or three different mortgage people and see which one serves the best. I always say, “Look for a personality you can live with, because, you’re gonna be living with them for a while.” So, you wanna find someone that gives you good information that explains the whys and the hows, rather than just, here, my rate is X percent and that’s all they’re gonna give you, right? You want someone that’s gonna educate you, that’s really important.

When you think about your mortgage, you are a commodity. They take all of these mortgages that they get in one month or a period and they package them together and they sell them on the open market. That’s why the pages are pretty much the same. Your notes’ the same in Texas, the deed of trust is the same, all of those things, the lenders package as we call it, everything you sign at the- at the closing table has to pretty much be in line. If one thing sticks out, if a piece of paper sticks out because it’s not the same as everyone else’s, they can’t sell your loan, because there’s something that’s out of- out of normal, right?

Think about your mortgage as a commodity and they sell you in a package. So, that’s first of all. You can’t change an and to a but at the closing table because then you’re papers are like everybody else’s, all right? So, that’s first of all. And then, when you go to the … your lender and you ask what’s the rate? Well, rates change every day and if the market’s really volatile, rates might change during the day. So, because you were quoted something at 10:00 in the morning, doesn’t mean it may still be that way at 5:00 in the afternoon. So, rate’s just one small part of the equation.

Closing costs, that’s another part of the equation. Not all lenders charge the same amount of closing cost. There’s- there’s under riding fees and- and recording fees and all kinds of stuff that go into a mortgage other than just rate. So, there’s a lotta questions you need to be asking other than, “Well, what’s the interest rate?” But lets just stick with interest rate for a second. That’s another something that’s not one size fits all.

When you see in an advertisement, or- or the newspaper or whatever you’re looking at that says, “I’ve got a rate of 2.5%,” whatever that rate is, right? May or may not apply to you and in fact, may or may not be available to you when the time comes. So, several things. First of all, you’ve got to have a house, under contract, with an address before you can lock in a rate. So, whatever rate the lender gave you on the day that you called him, may not be the same rate as the day you went under contract.

Now, once you do have a house and you go under contract, you can lock your rate in for a period of time. 30 days, 60 days, the shorter that period of time, the better your interest rate’s gonna be. If you had your bets and have to go say 60 days out, well, no lender’s gonna give you today’s rates for 60 days out. So, your interest rate might be a little higher. I got a really interesting email that explains some of that that I want to share with you.

Property type is another reason why your interest rate might be higher. A condo has a higher interest rate than say, a single family. So, that’s one interesting point. Property use. Are you buying this as an investment property? Or are you buying it for your use? If you’re buying it for investment property, your interest rate is going to be considerably higher than someone buying it for their own personal use. So, the why- the why of that?
As an investment property, you’re not there to take care of it, to look it over, to be there everyday, to … So the wear and tear on an investment property is probably a little bit more than someone’s personal home that’s there everyday, and watching after it, and taking care of it, and update it, et cetera. So, investment properties are always going to be a higher interest rate than someone buying it themselves.

Credit score, that’s a huge issue. If your credit score is, say, 750 or higher, you get some really good interest rates offered to you. But let’s say your interest- your credit score is 650, 640. You’re not going to get the same interest rate. Well, why? Well, it shows that these people use credit very, uh, very well, and take care of their credit. If your credit score is down here, maybe you’ve had some 30 day late pays. Maybe you- you’ve not paid something at all. Various reasons that drop your credit score.

Maybe you have too much credit. Lot of different reasons make those credit scores go up or go down, right? And so- and not having any credit at all is as big a problem as having bad credit. You know, as you graduate from college for example, you- you might have a- a credit card, but you might not have any rental history because you’ve been living in a dorm, so lot of different reasons that affect your credit score, right?

That’s another reason why your interest rate might be higher or lower than someone else’s that’s getting a loan on the very same day you are. A down payment. How much are you putting down? So, 20% down buys you a lot of good credit. So, the more money you put down on your home, the better your credit- your- the better their interest rate’s going to be. And that makes complete sense. If you think about it the way a lender or and investor thinks about it, if you only put down maybe let’s say 5%, a $100,000 house, you only put down 5%.

The bank is loaning you money on $95,000. If you were to walk away from this house in six months or a year and not pay your mortgage, they need to know they can sell this house and get their money back. Well, if there’s not a lot of wiggle room there for what you bought it for from what they’re loaning you, they may not get their money back. They may have to sell it quickly and get rid of that asset.

So, if you had 20% on that, they only were loaning you $80,000. Well, that’s a pretty good loan. It’s a pretty good hedge on your bet, right? That you’ll be able to get that money back as the bank. So, if you start thinking like the bank and start thinking like a lender, then you start to realize why they do what they do, or why they- they offer the rates they do, or the terms, those kinds of things. It all fits into a big box of mortgages.

So, what your loan type is actually FHA and VA, which are government loans, they are usually a lower interest rate than, say, a conventional loan. So, that’s a reason why a lot of people go to FHA and if you’re, uh, a- any kind of, uh, military, then you’re eligible for a VA loan. For a Veterans Administration loan. Your rate lock period, the shorter that is, as we’ve talked about, the better your interest rates.

First and second leans, we don’t see a lot of those, but your first lean, that’s, um, homes that are over conforming loans. Let’s say it’s a seven, $800,000 house. You can borrow, say, up to five, $600,000 at a lower interest rate. And then your second lean eats up the rest of that. It’s always going to be a higher interest rate on a second- on a second lean. That’s a whole nother negotiation and, uh, loan to be looked into.

When you’re refinancing your home, you might have different interest rates for different reasons. If you’re just refinancing a loan, again, let’s take that $100,000 house and let’s say that it’s dropped the … because your appreciation’s gone up so much, there’s a $75,000 split there. You- the bank is it’s a good loan for the bank to refinance that now because there’s enough equity there that they could get their money back if they need to.
So, you might get one rate for a refinance, but let’s say you want to take some money out to redo your home. So, now you’ve taken that $75,000 that you owed and now you want to borrow $80,000. That cash out as we call it, a cash out refinance, your interest rate’s going to be a little bit higher on than just refinancing your home.

So, a lot of different reasons for your interest rate. You can’t just go and say, “One size fits all. Here’s the interest rates today. I should be getting that.” It doesn’t work that. So, having a lender that can explain all that to you is really, really important. Or, having a realtor who explains that to you is also really important. I don’t usually step over the line as a realtor into the mortgage industry because not my job, but I do think that buyers need to be informed of how the system works and what you can expect, and the questions to ask.

I think more importantly than anything is I just want to know what questions should I have asked. I- I hate walking into a situation going, “I wish I had known to ask that question,” right? So, this gives you a little bit of information about mortgages and maybe help you ask the right questions when you go in to get your mortgage.

If you need anymore information, you can find us at http://www.dallasnative.com or we are on all social media…We Go Where You Go…thanks so much for listening.

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