The Educated Rate Shopper January 31, 2006
There are basically three types of borrowers:
1) The “how much money do we need” borrower
2) The rate shopper who is looking for every eighth of a point they can find in a lower rate.
3) The “how much is the payment” borrower
Today we had a meeting with “the rate shopper.” It was a good meeting whether we end up doing the financing or not. A detailed oriented micromanager type who found himself in the same boat so many rate shoppers end up in, information overload or “paralysis by analysis.”
The entire purpose of the meeting wasn’t to sell our mortgage, in fact we recommended he take a competitors loan, but was to help him compare apples to apples so that he could make an educated decision. But the real story here is the one quote that is so much better than the rest. It happens every time we see a rate shopper.
One thing you need to understand about mortgage interest rates is mortgage companies all basically get their money from the same sources and we all have to pay to borrow the money we lend to you. So how is it that one company can be a half of a percent less, for the same program, as everyone else?
If you’re a rate shopper you are almost certain to get this quote and when you do, my advice is to throw it out. These companies operate on the fact that if they can get you in the door and on paper they’ve got you. In a short amount of time you will be emotionally tied to the home you’ve selected and when all of the sudden the rates and fees go up you will be to close to closing and to emotionally committed to want to take a chance on losing your home and to tired of the process to start over.
Yes it’s true, once in awhile, you will have the rare good fortune to stumble across a lender that has a great program unique to them. If you do that’s great for you, however our experience shows this is rarely the case and you are headed for trouble.
Our meeting today had such a quote and our recommendation to him was that he throw it out. But, so that you know this wasn’t a self serving recommendation on our part, he did have a program quote from another financial institution we know he could trust and that we couldn’t compete with. Our recommendation? Make application with them and get the rate locked.
Check out these related posts:
- Why Mortgage Rate Changes Do Not Always Follow Fed Rate Increases
- Not all Home Loans are Created Equal
- The miracle mortgage? or not?
Article Tags>> Buyer-Information | Mortgage and Lending
- Posted in : Buyer Information, General Real Estate, Mortgage and Lending
- Author : DRMiller
Comments»
Great article. I will add that another way to detect these artificial rates is to consider how much information that broker asked you for quoteing you a rate. If they don’t understand your income, credit, or property details, the rate is nothing more than an educated guess.
When you call for rates before you have a contract, the quote is simply informational. Best to select your lender ASAP after the offer is signed around. Tell the lender you have a signed contract going into escrow and you are planning to select a lender today and lock the rate. Get a written confirmation of the rate and the lock expiration date.
Many think locks are automatically 30, 60, or 90 day locks, when in fact, a loan rep can lock for a number of days, like 23, and make some money by doing that. Best to make sure the lock is good for 5 or more days past closing, especially on a short escrow or if a lot of weekends and holidays are in the mix.
[...] Yesterday’s Rain City Guide, a Seattle real estate blog, has a good post, “The Educated Rate Shopper.” Home buyers shopping for a mortgage should beware of companies offering rates that are significantly better than their competitors. Some mortgage companies lure home buyers in with low rates that pop up just before the buyers are ready to close on their home. [...]
Rate shoppers fall prey to the same motivations as home sellers who go with the agent who says their home is worth the most money. See my full response at http://www.chicagometroarearealestate.com/?p=36 (”Bait & Switch is Alive and Well in Mortgages as Well as Listings”).