I’ve said it before, and I’ll say it again: mortgage rates are never one-size-fits-all!
Guidelines vs. Overlays
Why does one lender tell you no, and the other says yes? It’s simple: the first lender didn’t want your loan. If this sounds harsh, let me explain why, and what you should do if you’re told no. (Spoiler: it’s not that big a deal!)
Mortgage guidelines are sort of like DoorDash (stay with me here). I’m sure you’ve noticed how some food is more expensive on the delivery app than in the restaurant. This is because the restaurant is factoring in the extra fees that DoorDash requires, which are avoided if you order directly through the restaurant.
We can compare this to your credit score: If it’s an FHA loan that requires a credit score of 580, the brokerage may require that you have a minimum score of 640, just to ensure that they’re completely covered.
Overlays, in contrast, are a way for a company to limit their risk.
If you’re told no, ask why! Make sure you understand if it’s a guideline or an overlay. If it’s a guideline, you can get a different loan and/or fix whatever the issue is. If it’s an overlay, get another lender’s opinion.
If you aren’t getting clear answers, you can always head over to our favorite trusty search engine. Google the loan program name + the CFPB. Most results will be sites of lenders that want your business and should explain CFPB. Just be aware that some may present their overlays as guidelines, which can make the online research route a little less reliable.
It’s things like this that make the difference between getting what you want and getting denied.
What’s Your Rate Today
If your doctor gave you some tests and then recommended a treatment plan, would you expect it to be the same as your coworkers simply because they also went to the doctor last week? No, right? So why do we think mortgages work like that?
Plenty of people think there’s a standard mortgage rate. In reality, there are four main components. Some of them you can do something about, and some you can’t.
1. Mortgage bonds are the basis for rates. These have the biggest impact, and no one can control these.
2. Lender’s margins are how much the lender makes on your loan. You can somewhat control these – this is what people mean when they tell you to shop your loan. Unfortunately, cheapest isn’t always best and sometimes you get what you pay for. You might save money short-term, but bad advice always costs you in the end.
3. What you pay for the rate (points). You can control this.
4. Your individual details. You control these.
Finally, don’t forget that the rates you see online are usually fake click bait. We know WebMD isn’t the same as seeing a doctor, so don’t self-diagnose your mortgage. Get the right advice so that you get what you want.
Not All Lenders Offer the Same Programs
Let me tell you about this lender who lied to my client. Want to know why he lied? Because he wanted to get paid. The buyer was looking at all options (conventional, FHA, USDA). His previous lender had told him that USDA loans have a very low income cap & are difficult to get approved.
Have you heard that “beauty is in the eye of the beholder”? Well, “difficult” is in the eye of the lender. In this case, the lender’s company didn’t do many USDA loans and he wanted the buyer to pick an easier option so he could make a commission with less effort.
All three loan types were options for this buyer when they came to me. We explored pros/cons, and he decided which one best met their priorities. Ultimately, they chose an FHA loan, found a great house, and purchased it knowing they had checked out all the options. This is why the truth is priceless when it comes to purchasing a house.