I received an email from a close friend I haven’t seen in several years, although we occasionally stay in touch through emails or texts. We reside in different cities, actually in different states, so physical meetings are infrequent. Anyway, I received a text from her the other day, stating that she was in the process of buying a home, and she asked if I could review the loan documents sent to her. I replied, “Of course.”

She forwarded me her ‘loan docs,’ but they didn’t strictly qualify as loan documents. Instead, it was a Loan Cost Estimate with no specific property address listed. This is quite common because the Estimate is typically sent before selecting a home. After taking a moment to review it, I called her back and mentioned that everything appeared fine, except for the fact that I believed she should reconsider paying such a high number of discount points – precisely four.

I pointed out that the points were excessively high and recommended that she explore the option of trading some of the points for a slightly higher rate. According to her loan estimate, the difference in the monthly payment was roughly $40 per discount point paid. Her estimated loan amount was around $300,000, which made $12,000 a significant amount. She acknowledged this but expressed her desire to keep her monthly payment as low as possible. I conducted a quick analysis with her, illustrating that the point/payment tradeoff wasn’t cost-effective. Furthermore, she mentioned that her rate was 6.125%, and she felt comfortable with it, as the new payment would be similar to her current rent.

A week or so later, we spoke again after she had found a property and made an offer. The issue was that rates had experienced a substantial increase since her initial Estimate was sent, rising by almost 0.75%. I conducted my calculations and told her that I wasn’t certain if she would qualify based on her debt-to-income ratios. After a few more days, she texted me back, admitting that I was correct. The lender informed her that she couldn’t afford the amount she intended to borrow at the current rates.

However, my main point in recounting this story is, where was the loan officer throughout this process? Why didn’t the loan officer inform her about the maximum amount she could qualify for? Why didn’t the loan officer explain the importance of locking in a rate and the potential consequences of floating? Especially with rates on the rise, why wasn’t there a warning? True, borrowers receive a Rate Lock form that explains that rates can fluctuate until locked in, but at the outset, borrowers often find themselves overwhelmed with paperwork. It’s easy to overlook this particular form. I understand that loan officers may not always have the time to provide daily rate updates to all clients, but in the city where my friend was looking to buy, the loan officers weren’t all that busy.