Knowing when to lock in a mortgage rate

06.03.09
By Randy Johnson

The best mortgage professionals I know, the ones who have been at it for a long time, all have one characteristic in common: They think that their mission is to help people.

That isn’t so strange; I don’t think it is possible to have a long career in the mortgage industry without feeling like that. Short-term employees can burn and pillage at will because they will leave the industry. But to be successful in the long term, a loan agent needs to get referrals from satisfied customers. Those are the people who you helped enough and who felt good enough about the way you treated them that they are prepared to recommend you to their friends.

Of course, the mortgage industry has received some well-deserved negative publicity due to the subprime lenders and brokers who fed them loans. As a borrower, you would have some good reason to be skeptical about any loan officer. That’s all the more reason to get a good one.

It is appropriate to note here that the folks who get the best advice almost certainly get the best deals. But I really feel that many customers might say, “I got a good deal. I don’t know if it was the absolute best, but it was better than I could have found on my own. The important thing was that I was treated so well and they helped me in so many ways.”

The other crucial ingredient is the borrower. He has to place some value on help – he has to want it – and has to appreciate it when he gets it. Strangely, not every one does. There are far too many people who say, “Just give me the numbers and I’ll figure out what I want to do.” That is a shortsighted approach to getting a loan.

I have a client – well, really a “prospect”, because she won’t commit to me – who is like this. She has made one big erroneous assumption. She thinks that the process is simple, like buying something at a store. The fact is that getting a mortgage is a complicated process that involves choosing between a number of variables and choices.  

It is going through the “getting a loan process” where one takes a look at those variables and choices and make decisions. The very first one has to do with timing, and almost always it is better to start NOW. But every time I start that part of the conversation, she tells me that I am making things too complicated.

The problem, of course, is in seeing and understanding the choices and knowing that making good choices can save a lot of money. If she doesn’t even understand a choice is out there, she isn’t going to place any value on someone helping her make the right one.  

The simple fact is that most borrowers are like lost little lambs when they start the home-buying process for the first time. Many people start the process of getting a loan thinking that they know a lot. Sadly they do not know nearly as much as they think they do.

Who does know a lot? Experts, that’s who! Experts are loosely defined as people who know their field well. They have specialized knowledge about a process – in this case, getting a mortgage. In my case, I have learned a lot in 28 years. More importantly, I am willing to use that knowledge to the benefit of my clients.

Experts know rules that you probably do not know about – there are hundreds of pages of rules and even I do not know them all because the list keeps growing. They know which of those rules apply to you. They know about pricing variables and how to dodge the hits and take advantage of incentives. Today those are more important than base pricing. They know how to identify problems before they affect the deal. And they know how to solve those problems. They also know how to recognize unsolvable problems, ones that you may not be able to solve, or ones that would require a drastic change in approach.

Most important, they know all of those options that are open to you and they want to help you make good choices.

To finish my anecdote about the woman who didn’t recognize the opportunity she had to act: In spite of my persistent encouragement to get her started, she fiddled away the time thinking and re-thinking. Now the market has made huge rate corrections with rates substantially higher than a few weeks ago.  

What she forgot is that deciding when to lock is a critical choice. Thinking that it doesn’t matter and not deciding is actually a choice. It was a wrong one. What she should have done on Day One was to say, “Lock me in now,” because she would have had a much better rate than today.

The market will probably get better. I hope so, and maybe when that happens she will be more open to asking for help.

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Getting a mortgage is a complicated process that involves choosing between a number of variables and choices.