- The Washington Times - Wednesday, October 11, 2006

I received an e-mail from a first time-home buyer who was referred to me by a real estate agent who is helping her in the house hunting process.

Her contact with me is appropriate and very important in the early stages of this process because financing plays such an important role in buying a house.

The e-mail was simply a request that I give her a schedule of my company’s current interest rates and fees. I replied and let her know that my company charges a $95 processing fee. I also let her know we were currently quoting 6 percent on a 30-year fixed-rate conforming loan.

I also explained to her that the mortgage business is complex and that without the opportunity for me to speak with her, I would be unable to give her any helpful information. In order for me to give her an accurate rate and fee quote, I would need to know not only more about her purchase, but her overall financial objectives.

Consider the following: The purchase price range will affect her ultimate interest rate. Loans amounts that exceed the conforming loan limit of $417,000 fall into the “jumbo” category, increasing the rate by as much as 1/2 percent.

The down payment can affect the rate. Folks who are seeking 100 percent financing should expect to pay a higher rate than folks with a 20 percent down payment.

Once a buyer ratifies a contract, the settlement date can affect the rate. If the contract calls for a delayed settlement of 90 days, for example, locking in an interest rate for this long will be a little more expensive than a 30-day lock.

The expected hold period of the house can greatly affect a homeowner’s borrowing costs. If the home buyer is planning on selling the property within five years, for example, he might take out a 5/1 ARM, which carries a fixed rate for the first five years before a rate adjustment. Such a program will carry a lower rate than a 30-year fixed program.

Other financial objectives need to be established. A homeowner might choose a program that offers interest-only payments because he wants to use the reduced monthly cash flow so he can maximize his tax-deferred retirement account. Or, on the other hand, perhaps our home buyer’s objective is to pay the loan off as quickly as possible. A 15-year fixed-rate loan would accomplish this goal with a lower interest rate than a 30-year loan.

Now let’s talk about fees. As I said, my company charges a reasonable processing fee of $95. But wouldn’t it be responsible of me to provide a full disclosure of all fees and charges associated with the mortgage? Of course I should.

But even this doesn’t provide an accurate picture, especially for a first-time home buyer. What about the costs associated with the purchase that are not directly related to the mortgage? County recording fees, for example, can vary greatly depending upon the state in which you are purchasing.

The bottom line is: A loan officer needs to be apprised of some details in order for him to provide accurate quotes on interest rates and fees.

In the end, the woman phoned me and I was able to ascertain her situation and define her objectives, enabling me to provide her with not just accurate rate and fee information, but also a purchase price range that falls within her overall objectives.

In future columns, I will discuss the importance of having an initial consultation with a competent loan officer before the house hunt begins. Stay tuned.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@pmcmortgage.com).

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