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Question: My husband and I have been house hunting for the last three months. We've been working closely with a real estate agent and loan officer and have been pre-approved for a $250,000 mortgage. We finally found a house we love and signed a contract. We then made the formal loan application and received final loan approval. Here's my problem: I spoke with a co-worker who gave me the name of another loan officer. This fellow offered me the same rate with a quarter point less in fees, which amounts to $625. I'd sure like to save $625 but my real estate agent and loan officer says that if I cancel my loan and switch lenders my approval will be withdrawn and I'll be in violation of the contract. Are they saying this just to keep my business?

Answer: Well, I'd sure say they same thing if I were in your loan officer's shoes. Let me see if I understand this. You've been working for three months with a loan officer. He has verified your income and assets and checked your credit. He then wrote you a pre-approval in order to help the seller accept your offer.

Once your contract was ratified, the loan officer finished up his work and issued you a final approval. Now, in order to save $625, you want to jump ship and start from scratch.

Setting aside moral issues for the moment, let's look at the practicality of this. First you probably won't save $625. My guess is that you paid your loan officer $300 or more for the cost of the appraisal, credit report, automated underwriting fee and other items. If you pull your approved loan, I guarantee that the money will not be refunded. It's also unlikely that your loan officer will assign the original appraisal and credit report to the new lender. So expect to pay for those services all over again. Now you're saving only $325.

The next issue: If you pull an approved loan from the lender, your approval is null and void. How can a lender make a loan to someone who has withdrawn his application? Moreover, most sales contracts require loan approval by a certain date. If you withdraw your application after this date, you are indeed in violation of the contract, which means the sellers can keep your earnest money deposit and sell the house to someone else.

Are you sure you want to do this in order to save $325?

Now let's talk about the ¼ point savings. As you said, the $625 is equal to ¼ percent of the loan amount. Remember that one point is equal to one percent of the loan amount. The more points you pay, the lower your interest rate should go. The bottom line here is that ¼ point is certainly within a reasonable range when shopping for a mortgage. If your current lender was offering you nine percent and the new lender offers you seven percent, that's a different story. But $625 on a $250,000 is not worth worrying about.

It seems to me that your loan officer played a major role in helping you buy your house. If he's only $625 more expensive than the cheapest guy in town and he's spent three months working with you, you should be happy to pay the $625.

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