Getting a Rate Quote

How useful (or useless) are rate quotes?

Too often, borrowers read an advertisement or call a broker and ask for a rate quote on the spot.

When they actually close a loan, they find themselves with an interest rate that is significantly different from what they were quoted or what was advertised.

Why does this happen? Owning real estate is a powerful investment. The loan process doesn't have to be disillusioning or frustrating.

Here are a few rules to make the process a positive one.

Rule #1: You are never guaranteed an interest rate until you submit a loan application, get approved, satisfy any conditions the lender requires, lock in a rate, and close the loan before the lock expires.

Period. Full stop. There are no short cuts.

Rule #2: Rates change daily. And can do so significantly within a day.

When you submit your loan application, you will probably know that your interest rate should be within a certain range.

However, the loan application process can take between three and six weeks. Locking a rate on any given day can be different from any other day.

Rule #3: While you cannot know an exact interest rate that applies to you before a rate lock, you should be able to get a reasonable estimate of the range of rates for your situation. Rate quotes rely on a list of criteria. Know what they are.

If you see an advertised rate or get a quote that sounds too good to be true, it probably is - unless maybe you fall within a group of assumptions for certain criteria:

i. Credit Score: You have a minimum credit score of 680. (Sometimes the rate quoted is based on a 700 or 720 credit score.)

ii. Equity: You will make a minimum 20% down payment in a purchase, or own at least a 20% equity in the property in a refinance.

iii. Documentation: You will be approved based on a "full document" application. This means that you can provide all documents to support your income and assets, and can show steady income over the last two years or more.

iv. Total Debt to Income: Your total monthly debt payments are 40% or less of your gross monthly income.

v. Use of Property: The property is your primary residence.

vi. Type of Property: The property is a one unit, single-family residence that is not a condominium.

vii. Loan Amount: The maximum loan amount is $650,000 (or a lesser maximum).

Other criteria will also affect the interest rate on a loan:

> Cash Out: Will you need cash from the loan to use for another reason other than to pay for, or refinance the property?

> Payment Options: Do you want the option to make interest only payments?

> Prepayment: Do you want the ability to prepay the loan without penalty?

> Closing Date: Can the loan close in 30 days?

> Impounds: Does the lender require that you deposit amounts to pay property taxes (and insurance)?

There are also some more personal criteria:

> How comfortable are you with the risk of an adjustable rate?

> What is your cash flow situation over the likely term of the loan?

> Do you intend to pay off the loan quickly?

> Do you expect to refinance or move, and if so, when?

Arm yourself with information that applies to you regarding these criteria and next time you search for a loan, you will receive a more accurate assessment more quickly on the range of interest rates that applies to you.