How to Avoid The Low Rate "Bait & Switch"
Now that we've covered advertised mortgage rates and their assumptions I want to teach you how to avoid a low rate "Bait & Switch" which is commonly used to gain your business. Did you know that a quoted interest rate means absolutely nothing until that rate is locked in?
You see, interest rates are constantly moving, often making multiple adjustments throughout the day. This puts rate shoppers in a precarious position because they will often call several lenders requesting rate quotes and choose the one with the lowest quote.
While this may seem like a reasonable and logical way to conduct your business, you fall victim to two potential issues. The first being that you're trusting the lender has accurately evaluated your situation and quoted the proper rate. The second being that you're assuming rates won't change between the time it was quoted and the time it was locked.
What Does it Take to Lock a Rate?
Now, in order for a lender to lock in an interest rate on your behalf, they will need a few things from you. First and foremost is a property address. If you're refinancing this is simple but if you're purchasing a home, you will need to have a property under contract in order to lock in a rate. For this reason it doesn't really make any sense to shop interest rate until you've actually found a house.
The next thing your lender will need is to obtain a credit report to determine your credit score. This credit report MUST be a mortgage credit report so unfortunately any credit score you may have obtained online will not work for a rate lock because it is a consumer credit score. There are different credit scoring algorithms used to determine your mortgage score over your consumer score and that is why a mortgage credit report is essential.
I always suggest that you get your credit pulled with a trustworthy lender that you've researched and then shop around with that credit report if you feel the need. Once you have a copy of your mortgage credit report you can shop interest rates with other lenders and use that report. Make sure you ask the lender if you can get a copy of the report prior to having them pull it. Some lenders may not give you a copy for some reason or another.
However, prior to shopping for a better interest rate, I would have this 1st lender lock in your rate and break down the transactional fees that you'll be paying because you aren't just shopping rate when choosing a lender. They will be able to provide you with a rate lock confirmation and Good faith Estimate which will act as your bench mark for rate comparison.
This way you will have a legitimate rate lock to fall back on just in case the other lenders can't provide you with a better deal. However, I would not share the 1st lenders rate lock or good faith estimate with any other lender as it would give them a blueprint on how to beat the first lenders deal. Instead, let them know just the interest rate and then compare the fees when they supply you with their good faith estimate. This keeps things fair and truthful.
By following this protocol, you'll be able to honestly find the best mortgage deal for you. One thing to keep in mind is that all lenders aren't created equal and some are more diligent than others. When it comes to comparing interest rates it's fairly easy as it's one number against another but it's a little different when comparing the transactional costs and fees.
Make Sure You Totally Understand the Fees Associated With Your Quote
Comparing the costs and fees of a mortgage transaction can be quite difficult because the majority of lenders estimate everything from your property taxes to your homeowners insurance. Unfortunately, this can provide confusion for a borrower that is shopping lenders because the fees from lender to lender can be all over the place.
In order for you to better understand the costs and fees associated with a mortgage you can check out the articles below;