Mortgage rate at 6.5-6.7% for a 5% down

[Adam Pervez]

Hi,

I have worked with a few lenders and have been seeing rates for a 5% owner occupant conventional loan floating around 7.1 - 7.3%. I recently got in touch with a smaller bank that is able to do a 6.5% interest rate. Is that normal? Everything I was being told sounded too good to be true and makes me wonder why most people aren't doing this. Wanted to see if anyone has had any similar experiences with credit unions or smaller banks that originate their own loan. 

[Patrick Roberts]

Rates have come down a little in the past few weeks. Also, its very possible the bank has a buydown in box A masquerading as some other fees. Lastly, it could be that the bank is going to portfolio your loan at below-market pricing because they want the entire banking relationship (deposits, transaction processing, consumer lending, etc) or simply want the risk (yield).

Lots of local and regional banks have been retaining loans at really aggressive pricing recently as the current environment makes this favorable for them. However, the intrinsic cost of this "sweetheart deal" is dealing with a small bank underwrite. In my experience, traditional banks tend to have pathetic mortgage lending competence because they haven't invested or cared about this vertical in over a decade. Your experience could range from average to horrifying. 

If you want to quantify the intrinsic costs, ask your preferred non-bank lender to quote a buydown to 6.5%. This is the $ cost of not dealing with a potentially incompetent local bank mortgage process. The question then becomes this - is the $ cost worth the dependability and quality you expect to receive from the non-bank lender. 

[Reeya Clary]

I have a similar rate from my lender as well, 6.61%. It's good that smaller banks, financial institutes are competitive. I havent purchased yet but asked for options during looking around, which I'm glad I did. 

[Jay Hurst]

Quote from @Adam Pervez:

Hi,

I have worked with a few lenders and have been seeing rates for a 5% owner occupant conventional loan floating around 7.1 - 7.3%. I recently got in touch with a smaller bank that is able to do a 6.5% interest rate. Is that normal? Everything I was being told sounded too good to be true and makes me wonder why most people aren't doing this. Wanted to see if anyone has had any similar experiences with credit unions or smaller banks that originate their own loan. 

 Interest rates change multiple times a DAY much less day to day or week to week. The lesson here is when you are shopping for rates you want to do it as close to each other as possible to make sure you are comparing apples to apples. 

Also, there is not a whole lot of point of getting "quotes" until you have a property in mind at least for the same reason.

[Henry Lazerow]

I have seen this a good bit, what they really do is just increase the fees by the equivalent of 1.5-2 points even though the points box show 0 points. I like using the same mortgage broker lender who is investor friendly, a lot of the little banks don't know how to handle rental income and you get issues with underwriting mid deal. Not saying they are all bad but I have run into issues on client deals where we had to switch to my preferred lender.

[Robin Simon]

Quote from @Adam Pervez:

Hi,

I have worked with a few lenders and have been seeing rates for a 5% owner occupant conventional loan floating around 7.1 - 7.3%. I recently got in touch with a smaller bank that is able to do a 6.5% interest rate. Is that normal? Everything I was being told sounded too good to be true and makes me wonder why most people aren't doing this. Wanted to see if anyone has had any similar experiences with credit unions or smaller banks that originate their own loan. 

 Yes, this is pretty normal - generally conventional loans like this are super competitive (since everyones essentially offering the same product) so shopping and finding some deals especially with smaller banks and brokers can yield good rates well under the "prevailing headline market rates"

[Derek Brickley]

Hey Adam, hard to say.  With the lending world, rates generally don't vary that much bank to bank.  Unless you have a specific property under contract, there really isn't anything other than some rough numbers and estimates.  Just be sure to do your due diligence and once you find a home then work the numbers for that specific home.  Also keep in mind though that if they're offering a rate that much lower than the rest of the market, why hasn't the whole market moved towards that and why wouldn't everyone be using them?

[V.G Jason]

Check the fees, they could be saving you on rate and costing you today. Don't just look at the rate, look at it all. One by one, lender origination fees and each area of the cost to close. 

[Timothy Hero]

Quote from @V.G Jason:

Check the fees, they could be saving you on rate and costing you today. Don't just look at the rate, look at it all. One by one, lender origination fees and each area of the cost to close. 

 Exactly. I've seen people fooled on mortgages over fees because they love the rate. If a lender saves you $200/month on the payment but you spend an extra $8k in fees, you didn't get the terms you think.

[Erik Estrada]

Check your Loan Estimate. See all the fees the lender is charging you and how they are pricing the loan