Can a Mortgage Broker Guarantee the Rate?
March 5, 2001
"I have read your columns on price quotes from mortgage brokers, and understand the point that these quotes are not firm until they are locked with a lender. However, does that change if the broker ‘guarantees’ a certain rate, or ‘preapproves’ me at a certain rate?”
No. These are not exceptions to the rule that you can rely on a price quote only when you have written confirmation from a lender.
A rate “guarantee” from a mortgage broker is worthless. The price of a mortgage includes rates and points. (Points are upfront charges – one point is a charge of 1% of the loan amount). Guaranteeing the rate without specifying the points is no guarantee at all.
I recently had a similar experience with my broken treadmill. I got the dealer to guarantee the price of the needed replacement part but I neglected to pin him down on the labor cost. So naturally, I ended up paying more for the labor than for the part.
When you are “preapproved” at a certain rate, it means that your income is large enough to cover the housing expense when the mortgage payment is calculated at that rate. It also means that your credit is satisfactory. If your credit hasn’t been checked, you have a “prequalification” rather than a pre-approval.
But regardless of whether you have a pre-approval or a pre-qualification, you do not have a rate guarantee. Suppose you are pre-approved at 8%, for example, but you don’t lock at that rate, and then the market goes to 9%. Your pre-approval is worthless because you are now in a 9% market.
Whether you can be pre-approved again depends on whether your income is large enough to carry the housing expense when the mortgage payment is calculated at 9%. If it is, you can be pre-approved again – at 9%. If it isn’t, you can kick yourself for not locking at 8%.
"I have read your columns on price quotes from mortgage brokers, and understand the point that these quotes are not firm until they are locked with a lender. However, does that change if the broker ‘guarantees’ a certain rate, or ‘preapproves’ me at a certain rate?”
No. These are not exceptions to the rule that you can rely on a price quote only when you have written confirmation from a lender.
A rate “guarantee” from a mortgage broker is worthless. The price of a mortgage includes rates and points. (Points are upfront charges – one point is a charge of 1% of the loan amount). Guaranteeing the rate without specifying the points is no guarantee at all.
I recently had a similar experience with my broken treadmill. I got the dealer to guarantee the price of the needed replacement part but I neglected to pin him down on the labor cost. So naturally, I ended up paying more for the labor than for the part.
When you are “preapproved” at a certain rate, it means that your income is large enough to cover the housing expense when the mortgage payment is calculated at that rate. It also means that your credit is satisfactory. If your credit hasn’t been checked, you have a “prequalification” rather than a pre-approval.
But regardless of whether you have a pre-approval or a pre-qualification, you do not have a rate guarantee. Suppose you are pre-approved at 8%, for example, but you don’t lock at that rate, and then the market goes to 9%. Your pre-approval is worthless because you are now in a 9% market.
Whether you can be pre-approved again depends on whether your income is large enough to carry the housing expense when the mortgage payment is calculated at 9%. If it is, you can be pre-approved again – at 9%. If it isn’t, you can kick yourself for not locking at 8%.