Purchasing Or Refinancing Your Home
So let's say you're in the market to purchase a home or refinance one that you own already. Assuming that you don't have a loan officer from your local bank on speed dial, you'll probably take to the internet to obtain a rate quote (it is the information age, after all). That might lead you to a site like LendingTree.com or LowerMyBills.com. You're expecting to just put in some basic information and to have quotes from 3-4 banks pop up on the next page, right? Instead, you get a steady (and some may say incessant) stream of calls and emails from loan officers asking you a litany of questions about your existing scenario. By this point you're probably getting frustrated. Why so many questions? Why can't they tell you what the rate is that day?
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Unfortunately, it's not that simple, and the loan officer is not trying to be evasive when he responds to your question what's the rate? with a series of questions. Heres the deal; not everybody is going to get the same rate. The rate for which you'll qualify is going to depend on how risky your profile is in the eyes of the lender. It makes sense, doesn't it? Do you think you, with your perfect credit scores and 20% equity in the property, should get the same rate & terms as somebody with a 600 credit score who had a bankruptcy a year ago and now is trying to buy a home with 3.5% down? Of course not. So, the loan officer has to ask a series of questions to assess your profile and relative level or risk. Among the questions you may be asked are:
- What do you think your property is worth?
- Whats your debt-to-income ratio?
- What type of property are you attempting to secure financing for (single family home, condo, multifamily, etc.)?
- What will the occupancy status be, i.e., will this be an owner occupied property? A second home? A rental property, etc?
- Will you be escrowing the taxes and/or insurance in with the mortgage payment?
- What is the estimated loan size going to be?
- What type of product are you seeking (fixed, adjustable, second mortgage, term, etc.)?
- If you're refinancing, are you attempting to just refinance the balance of the existing mortgage, or are you trying to pull out additional cash for the purpose of paying off debt, building an addition, investment purposes, etc.?
You will probably be asked if the lender can run your credit report as well. By doing so the lending institution will be able to identify your three credit scores, scan the report for any derogatory information (bankruptcies, foreclosures, tax liens, late payments, etc.), and verify what your monthly required expenses are for credit cards, car loans, student loans, personal loans, other mortgages, etc.
Now, you may not feel like getting this in depth, especially if you're really just kicking tires, so to speak. In that case, a loan officer may very well provide you a rate quote without getting answers to any of the questions above, though the quote will likely be based on the optimal credit profile, rather than your specific profile. I guess this is analogous to the whole garbage in, garbage out principle; if you provide information relevant to your profile that is both accurate and complete, the loan officer will respond in kind with his/her quote.
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Posted in Financial Services Post Date 12/26/2016