The mortgage process can be a murky place – with most people only purchasing a home once or twice a decade, and rarely thinking about the mortgage market in between. Home buyers typically do not invest a lot of time educating themselves about mortgage rates. This is due in large part to the complexity of the mortgage market. Many buyers do a great job educating themselves about the process of securing a mortgage, but when it comes to rates, there is so much to learn and an entirely different language to understand! For this reason, we believe it is essential that you find a mortgage pro you can trust!
With the number of first time buyers on the rise, we thought it would be helpful to pull together some of the most common misconceptions we hear from buyers throughout the mortgage process. We hope that in doing so, it will help to clarify this part of the process.
1. Your interest rate reflects the total cost of your mortgage.
Mortgages can be expensive and the interest rate is only one of the costs to consider when considering your home purchase or refinance. Once you’re pre-qualified, it is best to ask your lender for a full estimate to show an itemization of the closing costs and prepaid items associated with your loan. It is here that you will find all costs associated with the loan as well as the money that is needed at closing. Knowing what’s behind the numbers is crucial for every buyer! Often, estimates will include points and fees for the rate being offered and it is important to consider these as a cost of your loan.
2. Your pre-qualified mortgage rate quote will be your actual mortgage rate.
A pre-qualification is not your end all be all. Your pre-qualification is just a starting point. Buyers should consider their pre-qualification as an estimate – it typically uses your income and a credit check to estimate the size of the home loan that your lender can provide. You are under no obligation – and neither is your lender. Just as the interest rates can change from the time of pre-qualification, you can walk away from your lender and get additional quotes.
The key here is to continue to communicate with your lender throughout the process to ensure that you talk through your loan options and what they mean for you. Once you are issued a loan estimate and your interest rate is locked, then the lender has committed to you the costs of the loan and the interest rate.
3. Mortgage rates are only released once per day.
This is a huge hurdle for buyers to understand, and breaking it down early in the process can help the transaction run smoothly from pre-qualification to closing. Mortgage rates change all the time, sometimes dramatically, and at times throughout the day. Because rates are affected by external forces like the bond market and economic reports, these rates can change more frequently then you’d expect! What is important to understand is that a quoted rate is not a final
rate (or “locked rate”), and in a time with market volatility you need to have a lender you can be in close contact with to lock your loan without a delay.
4. Your best credit score is used in your loan approval.
This can be a shock to some buyers, but you really want to pay attention to all three of your credit scores: Equifax, TransUnion and Experian. Lenders actually take the middle of the three credit scores when determining your pre-qualification and rate. If you are purchasing a home with another person, or co-borrower, the lower of the two middle scores is the score used for approval. Having one really high score doesn’t mean you’re going to get the interest rate that goes with it.
5. Advertised mortgage rates are real!
We believe that it is important for every buyer to understand that the mortgage rates that they see advertised are almost never real. Those rates are advertised using the best possible scenario – one that doesn’t reflect your credit score, property type, mortgage terms or any of the other factors that go into your final mortgage rate. You’ll save a lot of pain and heartache by not getting your hopes caught up in advertised rates. This is yet another reason why working with a loan officer that you like and trust is a crucial part of the home buying process.
In Sum
Throughout the process, there will be a lot of information and numbers flying around. Having a full understanding of what factors make up your interest rate before you jump in can be hugely beneficial. When working with our clients, we find that the more detailed information we can review with buyers before getting out there and falling in love with a house, the better off and more prepared you will be for the real nitty gritty of the loan process.
The best place to start the loan process is with a loan officer that you feel you have strong communication with and can trust. From the above mentioned misconceptions, the importance of being able to reach your loan officer for quick updates and clear information is a vital part of the process.
Give Tidewater Mortgage Services a call today to talk about your financial and homeownership options and goals, and let the pros at Tidewater get you moving in the right direction for the home of your dreams.
Written By: Jessica Sandler, Max Sandler & Whitney Kippes
