Profile picture for SoCal Engr

Can mortgage rates/terms be "too good"?

Under the heading of "if it sounds too good to be true..."

My general understanding of the mortgage business is that there are no "magic lenders". For the most part, all lenders/brokers are going to have rates +/- 1/8th, and what sets them apart is fees/costs.

So, what is the likelihood of a lender/broker having rates 1/4-to3/8 below what most others are offering - without any real concessions on other terms or cost/fees? Do some brokers have access to funding sources that are willing to discount below par?

If the rates/terms/costs are just "being discussed" (i.e., not on a GFE), then are there any legal obligations on the lender/broker (irrespective of whether or not it would be a wise business practice to "informally discuss" one set of rate/terms/costs and then hit the consumer with another set on the GFE.)?
  • November 17 2012 - US
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Answers (9)

"Most will be at 3.75 today for a 30 year fixed. Some Brokers cost will be more than the banks and credit unions but some are less. The broker I use does not charge an application fee however some banks charge you $375 just to take an application. Many banks so not have the knowledge as the brokers do."

3.75% is totally out of market more like 3.375%-3.5% on a conventional and 3.25% on a fha mtg with a credit of a few a point or two.

Your brokers may not charge an application fee as they have already picked a comp plan with a lender credit to them which does not allow for any other fees being charged.

As for a broker working 10 times as hard perhaps he is making 10x as much on the deal. Your broker's pick a comp plan with their lenders each quarter whether it be 1pt 1.5 pt or 2pt. This is passed on to every borrower they do a loan for in that quarter. Perhaps the rate you mention is so far out of market bc your brokers are charging a bit much
  • November 20 2012
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Zillow supposedly vets their "confirmed lenders" and requires them to be able to provide the rates and terms they quote on the day they are quoted.  But terms and rates change quickly, so there is little guarantee that a rate quoted today will still be available after the application is processed and property appraised.

Sill there is a large enough sampling of rates via the robo-quoters (confirmed lenders) on Zillow to be able to track the general trend on the rates.  So one can know if a loan officer that gave one quote and changes the terms when preparing the GFE is out of line or not.

Several of the better loan officers have pointed out flaws in many of the quotes of the Robo-quoters that seem to have questionable practices.  If one selects an experience Loan Officer that is honest, efficient and accurate (like Clay), one can be pretty sure they will help you lock at the best rates and terms available for your situation when the time is right.  Sure, some loan officer might be able to beat that rate with the same terms by up to 1/4%, but if you can't trust them to get your loan funded on time with little hassles, it probably isn't worth it.  Not to mention, even though Reg-Z requires them to have fixed markups on the loans for each lending source, that info isn't published for the general public, so one can't shop loan officers on that basis anyway.
  • November 19 2012
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Gene, It seems you do not like Banks. You stated " most will be at 3.75% today", if that is what your Broker is charging "most " borrowers then you should check with a few Banks. I believe you will find the avg 30 Yr rate is more like 3.25%, the chart on Zillow is calculating an avg of 3.23. In fact, a borrower with excellent credit could have seen 30 Yr Fixed FHA rates below 3% ( Par ) last Friday, almost a full point lower than your avg of 3.75%. That doesn't mean it would be the wisest choice ( w/out any Lender credit ) but it was available. 

 Another consideration to rate/price is the Originators comp plan, that will have an impact.      
  • November 19 2012
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Profile picture for govagent1
No not really, Just be sure you do your home work and call at least 3 lenders and compare rates and costs.

Most will be at 3.75 today for a 30 year fixed. Some Brokers cost will be more than the banks and credit unions but some are less.  The broker I use does not charge an application fee however some banks charge you $375 just to take an application.  Many banks so not have the knowledge as the brokers do.

Many banks just turn down people that not not cookie cutter deals.  Most mortgage companies will work 10 time harder than a bank employee to get your loan done.  I am a Real Estate Broker and I have 35 years in the banking industry and I use a Broker and get my clients the best deals and I do free credit repair myself.
  • November 18 2012
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And as HS mentioned, unless you have a GFE in your hand, they are not bound to produce what you're talking about.   And there are still far too many lenders out there that will verbally quote you on best case scenario (or even better than best case), knowing full well that you wouldn't likely get that deal.  But it sounds good, and just might win them the deal and they may have nothing to lose.   

Use someone you trust.
  • November 18 2012
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Generally, if it sounds too good to be true, it of course is.  If you shop around to, say, four lenders and the best is better than the next best by a quarter and then you then find fifth lender that is better by another .375, I'd say there's a catch somewhere.   But the best being better by a half a point than the worst may not be bogus.   It could be a red flag, though.

 It's almost definitely NOT true that if you look at eight lenders that the best and worst will be about a .125 point difference.   On any given day a lender may be trying to buy the market.   And not all of us have access to the same deal as others.   So yes it IS possible that one lender is can produce a much better than market rate on a given day. 

You'll find that going with the lender that promises the best deal (and based only on that) may not necessarily be the most efficient thing to do, though.  Your best bet is to use someone trusted or that comes to you very highly recommended.   As long as that person is close, you'll probably be happy you went that route.   I'd say this is particularly important when it comes to purchasing a home.  On a refinance there is much less at stake, so if you want to gamble on that unknown with the way better than market rate, your downside is much lower than if you did it on the purchase of a new home (where earnest money is on the line and closing late might mean thousands of dollars).  And what happens if they don't close in the specified lock period because they took too long to underwrite?  Are they still producing that rate for you?   Who pays for the rate lock extension?  You or them?

If it was me, I'd take that best offer, have them produce a Good Faith Estimate and then bring that GFE to your trusted source and see if they can match it.  If they can, well then that's that.  If they can't, well then you can decide if the difference is worth the gamble to you.


  • November 18 2012
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Different lenders seem to be stronger is some arenas than others.

I've found that, all other costs being equal, I might be merely competitive (i.e. same rates as most others) on most products but have found that on a couple of other products I'll come in 0.25% to 0.5% in rate lower than much of the competition.
  • November 18 2012
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Do some brokers have access to funding sources that are willing to discount below par?

That depends on your definition of Par, whose Par? When I price a loan it shows pricing from all the investors we sell loans to, "pricing" can vary up to .750 on the price on any given day for the same program/terms/rate. Also, you may be talking to 2 different Brokers who have the same funding source and one has a better price because they are rewarded for volume and pull through. An online check of the company offering " too good to be true " terms usually identifies the liars. Once you get outside of Conforming, High Balance Conforming, FHA, and VA loans the rate and price can vary widely.

I just saw an example of a too good to be true offer right over there>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Since these ads roll it might not show up every time you are on this page but you will probably notice it at some point. The line says 2.25% 30 Year Fixed Rate. When you click on it, it takes you to a lead generation page to fill out. If you scroll down and read the fine print you will see the loan with a 2.25% rate says 30 Year, 5/1 Adjustable, 70% LTV, 1.875% Points. Nuff said. If you look around for the 30 Year Fixed terms they show 3.00%, 70% LTV, 1.75% Points, nuff said again.  

Socal, since I am aware of your LO review a couple years ago I would simply trust that LO's opinion if an offer is too good to be true :)    
  • November 18 2012
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Profile picture for Honesty Sells
1. So, what is the likelihood of a lender/broker having rates 1/4-to3/8 below what most others are offering - without any real concessions on other terms or cost/fees?

Wont happen you are most likely being set up for a bait and switch. Promises mean nothing if not in writing and even then your limited.

Find one you trust and are comfortable with, stay away from the fast talkers who promise the world.

2. If the rates/terms/costs are just "being discussed" (i.e., not on a GFE), then are there any legal obligations on the lender/broker.

None at all
  • November 18 2012
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