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October 2, 2011

WeeklyBasis 10/1: How To Shop For A Mortgage

October 2, 2011

WeeklyBasis 10/1: How To Shop For A Mortgage

Rates held under 4% again last week. The link shows how rates closed Friday in the three mortgage price tiers: loans to $417k, to $625k, and to $2m.

But rates change in real time. Example: they rose and fell .25% last week as Eurozone optimism did the same and U.S. home prices, jobless claims, and GDP were first perceived positively then sentiment reversed. This extreme daily volatility won’t stop. So here’s how to shop for a mortgage.

Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what I see every week with shoppers focused only on rate: I quote a rate only after I’ve analyzed their entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.

They’ll either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else.

Then 80% of those cases come back to me because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.

What’s not the same lender to lender is the loan agent’s ability to advise properly, analyze borrower and property profiles, and close with no surprises.

So shop to find the lender and loan agent you feel most confident can perform on these three things.

Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

That’s for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home. Once you’re in contract, the same approach applies.

Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone each trading day as mortgage bonds rise and fall on economic and technical trading signals. So rate targeting ensures you’ll obtain the best rate amidst all the volatility.

Your loan agent should also be able to brief you daily or weekly on the market outlook.

Rate Preview October 3-7
Here are next week’s economic calendar highlights with rate impacts:

ISM Manufacturing Index Monday: This is a national reading of manufacturing activity, and while the last two months barely crossed into positive territory in July and August (50.9 and 50.6 respectively. Above 50 is expansion, below 50 is contraction), the regional surveys out of New York, Philadelphia and Chicago haven’t shown any consistent strength in recent months. This may drop to 50 or below, and if so, rates would be even to down.

Jobs Reports Wednesday & Friday: Payroll provider reports their September jobs figures Wednesday, and the official Bureau of Labor Statistics September report comes Friday and markets are expecting to show 60k new payrolls created. This after the economy added zero non-farm payrolls in August. Plus July was cut to show 85k new payrolls instead of the previously reported 117k, and June was cut from 46k to 20k. If Friday’s report is below expectations, rates will fall.

Europe Debt Crisis: As the Economist explains this week, political paralysis in Europe is still the theme so rates will still rise and fall on each little development in Europe.

Also Ben Bernanke gives his economic outlook to Congress Tuesday, and the Fed’s Operation Twist—where they sell short-term Treasury debt and buy long-term debt—begins Monday. Bernanke will likely reiterate the Fed’s rather dismal outlook reported September 21, which is neutral to better for rates.

Bottom line: Rates are likely to remain even next week, along with some brief dips below current lows.
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Must-Read for mortgage shoppers:
Refi Roadmap: A Locked Rate Isn’t A Closed Loan