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Wednesday, October 24, 2018

“Inconspicuous details or conditions printed in an agreement, especially ones that may prove unfavorable.” This is the definition of fine print in Google. Any mortgage agreement is filled with volumes of fine print and I don’t hope to address all items in my short column. Yet below are several that differentiate many of the local lenders and that you should consider.

Are all banks the same? Rate, points and APR are easy enough to check and in many cases the pricing will determine your choice. However, there are other factors that could impact the underwriting and pricing of your loan. Here are some fine print-type items to check before you commit, to help find the right lender for you.

Locking your loan. (1) Do you have to pay to lock in your loan? That’s not common and you shouldn’t have to. While it protects the bank against borrowers bolting mid-stream, it’s not required with most lenders and takes flexibility away from the borrower. Be sure to ask when you start. (2) Can you lock at the time of application or do you have to wait? Some lenders want to see documents to verify they have a qualified buyer prior to locking the loan. This protects the lender but puts the borrower at a disadvantage if they have to be at risk of increased interest rates waiting to be able to lock. Be clear on when you can lock the loan.

Float down. Does the bank allow you to lower the rate if rates drop prior to closing? While most banks have such a feature it’s worthwhile to understand the details. How often can you float down and what restrictions might there be? While most banks don’t charge for the feature, they do ask the borrower to incur a certain cost if they use it. In most cases the first ⅛ percent drop, approximately, is not passed on. Ask your bank.

Preapproval letter. How quickly can you receive a preapproval letter? While you and the realtor want to know there is some degree of review before the letter is issued, you also want to know you can receive the letter before delivering supporting documents. Ask how quickly the letter can be issued and what is expected of who. You definitely should provide sufficient information to submit an application, but supporting documentation should not be required for the letter.

Pricing. One lender may offer free appraisals, but if the rate is higher, the free appraisal can become expensive. Get a clear understanding of the fees the bank charges and the rate including any points or lender credits. Don’t just ask for the APR because it includes estimates that could be different from lender to lender but won’t vary on the actual loan. The APR may also not include pricing exceptions and promotional pricing that could be available from the lender.

Servicing. Will your bank service or sell the servicing rights to your loan? What happens if there is a problem with your loan in the future? There’s certainly an advantage to go to the person who originated your loan to ask them to help solve any problems in the future. If the servicing is sold, your loan officer will not have access like a loan officer for a bank that retains the servicing. This may not be a compelling reason to choose a lender but could prove helpful if you have a servicing issue and have trouble reaching customer service. Furthermore, if servicing is sold immediately, you could have issues with the first coupon.

Relationship pricing. Don’t just check a website for pricing. The price you will see quoted likely doesn’t include the discount if you currently have an account or establish a relationship with the bank. Be sure to ask the bank for a quote including any discount for being a bank customer. Relationship pricing can often make a big difference in pricing.

Jumbo pricing and recasting. Jumbo pricing may be better than agency pricing. It may be in your interests to take a larger loan in order to obtain the better pricing. In addition, perhaps by using less money for a down payment, you can secure relationship pricing. Be sure to ask about the difference in pricing. Most banks will allow you to pay off the principal and “recast” your monthly payments. This way, even if you want a lower monthly payment with a smaller loan balance, you can start with a higher balance in order to secure the better rate and soon thereafter pay down the mortgage and secure a lower monthly payment. Make sure your bank allows for recasting the monthly payment number. If the loan is sold, hopefully the new owner will also allow for this feature.

These are just some of the items you should consider when determining your lender. Obviously check the actual rate and pricing and make sure the lender is confident they can close your loan. Don’t assume because a lender has access to the products of many banks, they have access to the best program. Not every dealer can sell a Rolls Royce. If you want one, you have to go to the source. Mortgage bankers and brokers may not have access to the best programs and pricing offered by large banks, even if they have access to some of their programs. I have heard from many buyers, after the fact, that the rate they thought was the best could have been lower.

Be transparent with your loan officer regarding any issues you think could impact their ability to approve your loan. It’s in your best interest to know as early as possible if the bank will be able to approve your loan. If you have a simple situation, rate will likely determine your choice. If you have complications, you would likely have to find a lender who can handle your particular needs, even if the rate is higher.

So read through the entire agreement, if you wish. There are times when the fine print can be your friend and there are times when it will harm your interests. However, it is always beneficial to at least understand, at the start, what the fine print is telling you..

By David Siegel


David Siegel is a home lending officer with Citibank in the Englewood and Clifton offices. He can be reached at 201-725-9527 or [email protected] If you would like to be included in future Home Care seminars please RSVP to be added to the list.