I got all the way to the end of the loan pre-approval process, largely done on-line with a faxed verification, I was approved at the level I wanted to be per follow-up phone call, and then this Lender-who-had-the-best-deal said essentially:
“M’kay That’ll be 350 non-refundable dollars & if you don’t find a house in the next 45 days to use this loan/rate you lose the rate & the deposit too.”
This is a major lender. GQ:
Is this fee with a non-refundable drop dead date Standard Operating Procedure for pre-approval mortgage loans?
I think that there’s a distinction between being pre-approved, and having your rate “locked in.”
There are lenders who will pre-approve you for free. We (Mrs. Lucwarm & I) used one when we bought chez-Lucwarm.
Very very few lenders will let you lock in a rate without a non-refundable deposit. Because if rates go up, they will lose money on the deal, and if rates go down, you will go elsewhere.
There are banks and lending houses that will not charge this fee. However, many of them will. My credit union charges this fee and it is in the same range that you mentioned.
Being in the process of closing on a house, I can tell you that from my experience, the best thing to do is see a realtor. Your realtor will help you find a lending house that doesn’t charge a fee and will help you find the best mortgage too.
Mrs. Bernse and I have bought 2 homes, both through pre-approvals and never once had too buck up at all.
Maybe consider shopping through a mortgage broker instead of going right to a bank/lender directly? They bid for your business that way and may get a better rate. For example, the wife and I just got our mortgage on our home for Prime less 1.1 for the first 6 months, and then Prime less .4 thereafter. So, for 6 months I have an interest rate of 2.65% (atleast currently) Pretty sweet, eh? And this was with no bartering… the lender offered it in their bid.
You’ve gotta remember, if you pay your 20-25 year mortgage the full term (as opposed to making extra lump sum payments on the principal) they’ll be making an amount roughly equal the original loan (sometimes more!) in interest alone… this could easily be 100-200K dollars. No fricken way they need an extra $300 to “hold-onto” your rate. Tell them if you don’t get that rate with them, you’ll get it elsewhere… and chances are you can since if they pre-approved you another institution almost certainly will.
Preapproval is just that. You apply for a loan, submit your info (bank statements etc) and they preapprove you for a certain loan amount. Then as long as the appraisal of the house you find is less than the amount you were approved for, you’re done. Many places charge for this since they do all their work up front. Since finances can change, a preapproval is often of a limited duration.
At most place you can pre-apply. You give them all the information, but they don’t go through the approval process. This is usually free. It really doesn’t add much to the closing time compared to preapproval.
Did they lock your rate at the time of the pre-approval? I gather from the OP was being offered a rate lock. Every bank I spoke to wanted a deposit to lock rates. This seems reasonable to me: A rate lock without a fee means that the bank is bearing the risk that rates will increase, with no upside should rates drop, since the borrower is free to go to a different lender.