The most common question I’m asked during the mortgage prequal or pre-approval process is ‘What Interest Rate Do I Qualify For?’ My answer often confuses people when I respond by saying, “You don’t qualify for a rate, you choose the interest rate you want.”
Temecula home buyers and home owners have always had the option to choose the interest rate they want (with-in parameters), but most lenders never give borrowers that option and they certainly don’t communicate it this way. They are taught to withhold or be very vague with that information. It’s a lame sales technique.
At the end of the day, it all boils down to what rate you need or what you want to pay. If you need help paying closing costs, you can choose a slightly higher interest rate and the bank will give you a credit that can be used to pay closing fees. If you want a lower rate in order to receive a lower payment, you can literally ‘buy’ yourself a lower rate. This may be a good option if a seller is paying your closing & settlement costs.
For Example – on a $200,000 loan amount: Lets say a rate of 4.375% gives $0 credit back to you, but it doesn’t ”cost’ anything either. This is called a PAR rate. If you choose a rate of 4.625%, it may give you a lender credit back of 1% = $2,000 to be used to pay closing & settlement costs. The higher the rate you choose, the larger the credit. You could also choose a rate of 4.25%, at a cost of .5% = $1,000. This is called a Discount Fee or Point, and would increase your total closing costs.
Let me explain further because there is a difference when using an FHA, VA, or USDA government loan compared to a Conventional loan (think Fannie Mae/Freddie Mac).
Term you need to know now: Loan Level Price Adjustment (LLPA) – a fee charged based on various risk factors, like equity/down payment, credit score, occupancy or property type. More risk = more costs to the consumer……you can thank your government official for that. Read this Mandatory LLPA Fees Prevent Borrowers From Getting The Lowest Rates
For Conventional loans, our government backed mortgage companies Fannie Mae/Freddie Mac assign a mandatory adjustment (LLPA charge) to a borrowers rate. ALL lenders must apply these adjustments if the loan if an ‘agency’ loan (Fannie Mae/Freddie Mac). You can see for yourself here LLPA Fannie Mae Fee Matrix.
For FHA, VA, and USDA insured mortgages, borrowers are treated more equal, regardless if you have an 800 or a 620 FICO score, when it comes to mortgage rates. With government loans, each bank/investor may have their own minor adjustments to the rate or fee for similar LLPA risk factors mentioned above.
If you are speaking to a mortgage lender/loan officer about mortgage rates, and they don’t offer you multiple rate options and show you the cost or credit for the different rates available, then you may be speaking to the wrong person.
Or, if they don’t show you the actual rate sheet, so you can see for yourself what the credit or cost is for a specific rate, then you may be speaking with the wrong person. If you want to see our banks rate sheet, just ask.
You want TRANSPARENCY from your mortgage lender, right? Don’t just accept what they tell you…..make them prove it by showing you today’s rate sheet.
DISCLAIMER: You should also know that no matter what rate you choose, it does not affect my compensation. I have no vested financial interest to what rate you choose. If I did, I wouldn’t show you the rate sheet:-)
If you want to avoid playing the mortgage rate game and work with a mortgage lender who is going to shoot straight with you about mortgage rates, will help you properly compare ALL your loan options, and give you an advantage over other competing buyers in the market, call me (951) 215-6119.
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