by Henry Savage
Question: I am almost at the point of making an offer on a home with a ten percent down payment. My offering price will be $360,000 and I want an 80-10-10 mortgage program to avoid private mortgage insurance. When I spoke with the loan officer, he was vague in giving me some rate quotes. I don't want to end up ratifying a contract without knowing the specific terms of the mortgage.
Also, the sales contract forces me to put in a specific interest rate with the language "or market rate." What does this mean? How am I to know what interest rate I'm going to get? I'm just trying to protect to myself because I didn't get a good feeling from the loan officer. Any suggestions?
Answer: Yes, trust your gut. If your loan officer isn't answering your questions, it's time top find another one. There's absolutely no reason why the loan officer couldn't have given you a firm interest rate quote on both the first and second trust, along with an accurate estimate of all closing costs.
The primary job of a good loan officer is to help establish the clients' objectives and match the best mortgage package that meets those objectives. It is the loan officer's responsibility to ensure that the borrower has a complete understanding of the mortgage programs and costs involved.
Let's give your loan officer the benefit of the doubt. Since you don't have a ratified contract, it's possible that his mortgage company doesn't allow a borrower to lock in a rate until this happens. This would mean that the rates would be subject to change until the deal is firmed up. Even so, your loan officer could certainly have given you the market rates and some specific numbers with the caveat that the rates can't be locked until contract ratification.
This brings us to the second part of your question. You don't need to worry about what interest rate is put into the contract terms. Since the contract contains the language "or market rate," it basically allows you to change the financing as long as it doesn't affect the seller.
Here are a few things that your loan officer needs to tell you:
- Once you have established the best mortgage program, find out when the rates can be locked and how long the lock is good for. Make sure the lock period is long enough to reach the agreed upon settlement date.
- Make sure a "Lock In Agreement" is executed in writing by you and the loan officer. This form will outline the rate, points, if any, and lock period.
- Make sure you receive a Good Faith Estimate of Closing Costs. This form should give you an accurate estimate of the closing costs and should match the Lock In Agreement as to whether or not points are being paid. It should disclose any prepaid interest and escrow deposits for taxes and insurance. It should also reflect the accurate loan amount and interest rate and provide a summary of how much you can expect to pay at settlement. An accurate Good Faith Estimate will prevent any surprises at the settlement table.
A good loan officer should be proactive in his explanations and welcome any an all questions from his borrower. If you are not receiving these services, there are plenty more that will happily help you.
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