Questions and Answers

Q. I am currently shopping for a home loan. How do I go about selecting a lender?

A. Lower interest rates seem to produce innumerable ads and promotions for business from lenders. The selection process is not an easy one. If you have had experience with a lender and it was a good one, why not return to the same lender for your next loan? This is the best recommendation.

If the lender, in the past, has performed a service that you consider to be competitive, efficient, competently performed and timely return to that lender as your shopping starting point. If your needs have change since your last loan, determine that your former lender can fulfill the current requirements.

If he or she cannot fulfill your needs, then telephone others or better, get referrals. When you interview a lender your comfort level should increase as the interviewer asks you questions that can direct you toward the best loan.

Q. A lender has told me that he will lock in a rate for me and if rates go down he will shop around for lower rates and lock will another lender. This seems like a good way to apply for a loan. Is this a good deal or am I missing something?

A. A rate lock, by definition, locks in a rate for a borrower for a specified period, usually 30 to 60 days. The lender agrees to hold the rate and points payable by the borrower to the rate quoted at the time the application is taken. The rate lock protects the borrower, if rates go up. However, in a volatile market, rates can change quickly.

Many borrowers feel that they should protect themselves by completely two or more applications to hedge on rates. Investors are aware of this practice. They (the investors) are now linking social security numbers with the borrowers' names as the locks are committed to by lenders.

If an investor finds out that a borrower is submitting multiple applications through lenders or if a broker is shopping and locking with many wholesale lenders for that borrower, the investor will not take a lock for that borrower for six months. The rate lock hedging thus can "lock out" the borrower from a good rate.

Lenders commit to a rate through the rate lock process and investors look to have a loan delivered to them at that rate within the rate lock period. For 1/8 of 1 percent on a loan you may be paying financial Russian roulette as investors start this tracking process.

Q. I graduated from college three years ago. I have been told that I can afford to buy a home but my credit is not the best. I never considered timely payment of bills to be important. What can I do now?

A. For many, it is a rude awakening that untimely payment of bills will come back to haunt them at time of loan application. This does not only apply to home loans but to any extension of credit such as auto loans, charge cards, utility credit extensions, insurance and even employment opportunities.

If you have the income to qualify for a home, options are open to you either by virtue of a higher down payment or increased interest rates or limited term loans with conversion options after several years. If there are derogatory credit lines on your credit profile, explain the circumstances for the late payments. Your explanation will not give you a lower rate at this time but will at least give the underwriter a verbal portrait of you.

After making timely payments on your new loan and all other obligations, you can take advantage of the interest rates available to "A" credit borrowers. A good "past credit" history is a most valuable instrument for "future credit" extension.