We recently wrote about how mortgage interest rates can have a direct impact on your purchasing power. Logic would follow that by shopping for the best interest rate, you’ll maximize your purchasing power, right?
Not exactly. In reality, shopping for the best interest rate alone doesn’t work anymore. You can certainly find competitive rates, but these days, let's talk about shopping for the best value—because in today’s housing market, choosing a lender based on rate alone could actually cause you to spend more.
You’ll get the best value if you work with a loan officer who actively manages your loan. They should structure it correctly the first time, while also paying attention to market forces that may impact your interest rate.
Unfortunately, because many homebuyers still think shopping for the best interest rate is the right approach, they’re more likely to make these six common mistakes:
Six of the Most Common Mistakes
1. Missing Out on Positive Market Trends
What if the market is improving? Ask your loan officer when you should lock in your loan and why. It’s important that they’re taking into account the direction of the market, upcoming factors, votes that could swing rates, and other trends.
2. Getting Hit with Negative Market Trends
It’s not uncommon for a first-time homebuyer to think they’re getting one interest rate, only to hear from their loan officer, “Sorry, rates changed.” Get something in writing from the loan officer to guarantee the rate and protect yourself.
3. Missing a Short-Term Lock
Ask your loan officer about options for a short-term lock or a rate extension. Although you can pay for a 45- or 60-day lock, that can get pricey. This is where your loan officer should get creative to help you save money.
4. Locking In Late in the Week or Before a Holiday Weekend
Savvy loan officers know that it is typically best to lock in a loan early in the week and late in the month. Why? Because pricing is usually more aggressive on Fridays, early in the month, and before holiday weekends—which means the borrower will pay more.
5. Not Locking In Your Loan While You House Hunt
Although not every mortgage company offers this option, some will lock in your interest rate without a signed contract. As interest rates continue to creep up, this is a huge benefit to be aware of.
6. Locking In Your Loan with the Wrong Loan Structure
Look for a mortgage company that is knowledgeable about the best program for your situation, because the wrong kind of loan can cost you unnecessary points and fees.
For example, one customer’s lender failed to tell her about a $5,000 down payment grant for which she was eligible. Another buyer was forced to pay a higher rate because her loan officer didn’t realize the property qualified for specialty financing. These are frustrating mistakes that will cost you money, so it’s vital to find a loan officer who will go to bat for you.
Finding the Best Loan Officer for You
As you can see, finding a skilled, experienced loan officer provides more value than finding the lowest rate on a given day. Instead of searching for someone who can save you a tenth of a point on your rate, seek out a loan officer who truly understands what moves interest rates—someone who will put in the time and effort to prescribe the best and most cost-effective loan.
Look for a lender who offers the following:
- Lender guarantees: In some cases, the lender will waive all of your fees when you take otu a subsequent loan.
- Locking in before you find a home: Certain lenders will offer to lock your loan before you have a contract. Be sure to ask if there is an extra fee and whether the lock has a float down, which enables you to get a lower rate if interest rates fall before you close on your house.
- Full upfront pre-approval: See if your lender will extend resources to approve your loan before you negotiate for the home. This is not a prequalification or pre-approval, but a fully underwritten loan.
- Expert mortgage advice: Finally, look for a loan officer who has the experience to actively and effectively manage your interest rate—now and for the life of your loan. Seek out someone with a system that constantly monitors everything that could improve your loan and/or rate. And be sure to find a loan officer who you feel gives good advice on anything that could cost you more money.
By prioritizing these items, instead of focusing on the interest rate, you’ll be better positioned to save money over the life of your loan. And in the meantime, you’ll rest easy knowing that your loan officer has your best interests in mind.