Contents
Mortgage Shopping 101
Rates, Points, and Locks
Ask the Right Questions
Potential Pitfalls To Avoid

Mortgage Shopping 101.
Shopping for a mortgage is not too dissimilar from shopping for other big ticket items such as a car or a home. Armed with just the right insider information, and knowing what questions to ask can transform a confusing and all too often intimidating experience into a rewarding one.
Everybody loves a great deal, and therein lies potential trouble. Some unethical sales people will take advantage of this all too natural desire for the lowest price. When our expectations outstrip our reason, we often become vulnerable to deceptive sales practices.
The good news is that it is easy to protect yourself, when you know how. Simply put, the best defense is a good education. And that is where Home Sweet comes in. Armed with the right information and the right questions, you will become impervious to misinformation and deception. Loans

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Rates, Points and Locks.
The object of any business is to turn a profit. In order to do that, businesses the world over, including mortgage lenders, charge what the market will bear. It is credit markets (cost of money), competition and customers that, ultimately, determine the breadth and scope of that market.
In this context, it is important to understand that interest rates change everyday, and in a volatile market, may change more than once a day. Additionally, rates and points (one point is equivalent to 1% of the mortgage amount) are inextricably linked, thus allowing the interest rate to be bought up or down. Typically, one half a point will buy the rate up or down approximately one eighth of a per cent. Most lenders allow a free sixty day rate lock (interest rate guarantee) on most of their home mortgage loans.
Beware the salesman who tries to talk you out of a rate lock because "rates will be going down soon." First, his crystal ball is no better than yours is, and he has no idea in which direction rates are headed. And second, if he can convince you to float the rate, he is then free to low ball the quote, knowing that he can not be compelled to deliver it.
It is important to be aware that most of the rates you see advertised are, in essence, low ball rates. Designed simply to make the phone ring, these rates typically contain a minimum of at least four points, and a ten, possibly fifteen day lock. While it is possible to close in ten days, it is highly unlikely. Most closings take place within thirty to sixty days. So although many advertised rates may be technically accurate, for all intents and purposes they simply do not exist.

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Ask the Right Questions.
The following represents a list of key questions that will put you in the driver's seat.

1. How quickly can you deliver a written commitment? If the lender is sophisticated enough to be using automated underwriting, in most instances, they ought to be able to deliver a commitment within 24 hours. If not, the commitment could take weeks.

2. When may I lock my rate in, and is there an additional cost for doing so? Most reputable lenders allow you to lock a rate from application right up to a week prior to closing. Beware the lender that will not allow the rate to be locked until commitment, or even closing. Although most extended locks (90days, 120days, 180days etc.) do cost extra, a standard 60 day lock should be inclusive. If there is a rate lock or commitment fee assessed, make sure that it is refundable, and ask for written confirmation.

3. What are your fees? All lenders charge fees and are required by state and federal law to issue a written disclosure (Good Faith Estimate) to the borrower. However, not all lenders charge the same fees. Legitimate fees include application, appraisal, credit report and attorney review. Beware of lenders that charge an additional commitment fee, especially if you're applying for a zero or no point loan. If the commitment fee is a half a point or more, then you no longer have a zero point loan, do you? Be especially leery of investor fees, processing fees and warehouse fees. If your lender is charging any of these, find a new lender.

4. Are you FannieMae or FreddieMac approved? Both these quasi-governmental agencies have strict membership and net worth requirements. Although not an iron clad guarantee, approved membership with either of these agencies gives you reasonable assurance that you are dealing with a reputable lender.

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Potential pitfalls to avoid.
The best way to avoid mortgage pitfalls is to recognize them and take corrective action before they can hurt you.
1. If your closing date exceeds sixty days, never immediately disclose that fact. Some salesmen, once they know you can not close in sixty days, will give you a low ball quote, as much as a quarter per cent or more below the market to entice you to apply. They are secure in the knowledge that since the quoted rate can not be locked in, they are in no way obligated to deliver it.
2. Be aware that there are no free lunches. So when a lender claims that it will close your loan today and then offers you a free refinance to a lower rate at some undetermined date in the future, realize that only pure luck could make that happen, and even then your chances are next to nil. Why? First, because the lender has no idea what rates will do in the future. And second, because a free or no cost refinance really is not free. The interest rate is hiked on average .375% or more above the market to cover closing costs. So, although the lender "pays" those costs, you're the one who is really picking up the tab, through a higher interest rate.
3. If you have a tight closing schedule, you need to choose your lender carefully. A good mortgage broker is expert at all facets of mortgage lending, and will work closely with your settlement agent to insure a timely closing.
4. If you are unsure whether paying points makes sense or not, ask yourself the following question: How long will I be in the property? If you intend to be there more than 4.5 years it makes sense, if not, it doesn't. Four and a half years is about how long it takes to earn back the points you paid for a lower interest rate. The only other factor that would influence this decision is the availability of funds to close. If your funds are tight, then a no point loan definitely makes sense, no matter how long you will be there.

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