More on Mortgage Loans

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  1. Most lenders get their money from the same sources – from Fannie Mae (FNMA), Freddie Mac (FHLMC), and Ginnie Mae (GNMA). The standards are uniform and fairly strict for the loan to be approved.  In industry jargon, we call this “A-paper”.
  2. Even with “A-Paper”, underwriting guidelines may differ from lender to lender. This is called an “overlay”, where some lenders have more strict guidelines in place than FNMA, FHLMC or GNMA require.
  3. Some lenders will offer loans for people who don’t qualify for the loans in #1 – but the trade off is a higher interest rate and possibly higher fees. Criteria for loan approval starts to vary quite a bit from lender to lender, so if one doesn’t work, try another. This is typically called “A- or Alt-A” paper. It is considered more risky than A-paper, but less risky than sub-prime.
  4. Sub-prime loans are for those who don’t qualify for A-paper or Alt-A lending. They completely set their own criteria and rules and typically cost a lot of money. Still, not a bad deal if this is what it takes to get you where you want to be. It’s all a trade-off.
  5. Interest rates change daily – so if you compare one lender’s rates that you got today to the rates of a lender you talked to last week, you are comparing apples and oranges.
  6. Be wary of lenders promising you a rate where you get “free money” back. You are likely paying for that lender credit in your interest rate. It’s not a bad thing, but it’s definitely not free. Ask how much the interest rate would be if there were no lender credit. Then decide for yourself if the lender credit is something you want.
  7. Since most lenders differ very slightly in terms of interest rate, the interest rate might be the least of your concerns. There are other questions you should ask – 1) how much does the lender charge in additional fees (this does not include fees that the lender has no control over) and 2) does the lender have a good reputation for completing your loan as promised, in a timely manner?
  8. Pay attention to the number of days for the rate lock. It does not good to get a great interest rate that is good for 30 days if you aren’t going to settlement for 45 days. Your rate lock needs to be realistic for the amount of time it takes to get to closing.
  9. All the promises of a great interest rate don’t mean anything until you have a contract and are ready to lock in your rate. Last week’s rates don’t matter – the only rates that matter are today’s rates. If a lender quotes you a rate that is too good to be true, it probably is. You’ll find that this lender’s rates are suddenly in line with everyone else on the day you need to lock in your interest rate.
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