Maybe it’s just me, but I do listen pretty acutely to all mortgage advertisements I hear on the radio or television. Many of the advertisements are confusing and difficult to follow with acronyms, license numbers and industry-specific language. But, I heard one the other day from an unnamed lender … that rhymes with sprocket mortgage … that was pretty interesting.
The specific advertisement was boasting about the lender being able to lock in an interest rate for up to 90 days before a borrower had even decided upon or gone under contract for a specific property. Furthermore, the advertisement stated that once the interest rate was locked in for that 90 days, the rate could be renegotiated between the day the loan was locked and closing, if interest rates were to decrease.
That is a pretty powerful and advantageous option for buyers in the current housing and interest rate environment. Truth be told, the advertisement is 100 percent accurate, and a few lenders do have such options for borrowers, including Central Rockies Mortgage.
Please do not misinterpret that as I am not trying to make this column an advertisement for my company, nor is this an attempt to try and “one-up” the specific advertisement. The point is to illustrate how beneficial this scenario can be to potential buyers.
As I have outlined in previous columns, the current housing/real estate market can be tough. Due to a lack of inventory, properties tend to come on the market and then go under contract in a very short or quick time frame. Compounding the difficulty is an extremely volatile and erratic interest rate environment. Bond markets and interest rates are trending much like the stock indexes right now. They are volatile, subject to quick and severe corrections, and are based on countless global factors. Interest rates are definitely in a rising/increasing cycle and trend. All of these factors make it imperative that potential buyers are well positioned and educated when it comes to their financing as they look for properties to buy.
In order for a buyer to put themselves in a position as outlined in the advertisement, they need to go through the entire preapproval process with me or a lender. Which means, I would need to obtain full income and employment, asset and credit documentation for a full and thorough credit underwrite of the borrower. This is known as the pre-approval process. While the process can be quite involved from a paperwork and numbers standpoint, the process can generally be completed in a relatively quick time frame of a few days or a week. The effort taken is well worth both the buyer’s and the loan officer’s time.
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Once the loan officer has done all of the due diligence and initial underwriting, the two parties can get a detailed but estimated number on a purchase price, down payment, loan amount funds to close and overhead on the property. At which point, both parties can feel much more comfortable and secure as the buyer looks for properties in the range of that criteria.
As the advertisement states, the loan officer can even lock an interest for the borrower at current market levels, taking said market volatility off the table so to speak for up to 90 days. This can serve as a firm pre-approval for the borrower because they have already been through the initial credit underwriting portion of the process. The full approval of the loan and the financing is still obviously subject to finding a property and having the collateral or appraisal on the property completed and accepted.
For buyers in this current environment, it’s all about being educated, savvy and ready to move quickly if or when an opportunity may present itself. The scenario outlined in this column definitely puts buyers in this position, but the advice, counsel and knowledge of a seasoned mortgage professional is an absolute necessity for the process as well.
William A. DesPortes works for Central Rockies Mortgage Corp. He can be reached at 970-845-7000, ext. 103, and williamd@centralrockies.com.
