Here is an article that I wrote for the Zillow.com Real Estate Guide to help people shopping for a new home loan and considering shopping for a mortgage rate online. I hope this helps you if you are considering using the internet to refinance your home.
The ads are everywhere, every web site you go to they are there flashing at you “Get a $200,000 mortgage for $848/month. Choose your state. Click here”? They are on TV with “Banks compete, you win”? and they are in the newspaper, on the radio, in sports arenas and anywhere else you can stick an advertisement. I’m talking about LendingTree.com, LowerMyBills.com and a slew of other smaller companies with similar business models – online companies built to give you 4 lenders as options for your home loan so that you can leverage the competition to get the best loan possible. That, at least, is their pitch to you. The reality is quite different. In this article I will prepare you for entering the world of the online mortgage quote and some things to look for in selecting the company who ultimately handles your loan. With some diligence you can get the best available from the competition, but it doesn’t come without some work on your part.
6 things you should know before you fill out any online form for a refinance quote:
1. Your information is going to go to at least 4 lenders and/or brokers, sometimes 5, sometimes many more. When you hear 4 lenders you may mistakenly think “4 calls.” While this is a logical assumption, it doesn’t hold water in the mortgage quote world. Because 4 or 5 or how-ever-many banks are competing (that’s what you wanted, right?) they are going to call you until they get a hold of you. 4 companies all trying to reach you at once can be overwhelming. This problem is exacerbated by the fact that sometimes your information goes to more than one person in each of the 4 companies. The company plays the “whoever can get this customer on the phone first wins” game, and you’re the prize. Take a few people at each company calling you and you now have 12 people calling you. It’s easy to see where this leads. Your phone will ring, and ring, and ring for the next two to three days.
To help keep the annoyance to a minimum provide a number that you can comfortably speak on and one that you can ignore if you feel like it. I often recommend that my friends give their cell phone numbers – you can always turn your cell phone to silent. I highly recommend not providing your work number. Repeated calls at work can lead to a receptionist complaining about handling too many personal calls for you, disciplinary action from your supervisors for the obvious personal nature of a large volume of calls, and looks of contempt from co-workers who have to hear your work phone ring all day for several days straight. It’s a bad idea.
2. Be prepared to get a lot of information very quickly. Shopping for a mortgage online has been compared to walking through an old-world bazaar, with street vendors shouting at you and hawking their wares, promising the lowest whatever-it-is that they think will win your business. They throw around ridiculously low interest rates, no closing cost quotes, anything they can to make you stop at their “booth.” Anything for them to stand out from the crowd of noise, phone calls and sales pitches. It is worth it to them. Getting you to work with them is challenge number one, and they need to wow you right up front to get your attention. It’s up to you to remember the bazaar metaphor and dismiss much of the hype you hear as just that until you see some firm documentation. Don’t cut off your conversation with the other providers because you’ve found who you think you’ll work with. Often the one that catches your eye at first is the one with the least to offer you when it comes down to the brass tax.
3. Be prepared to spend some time on the phone. By definition loan officers can’t quote you a rate with out having an accurate picture of your financial and credit standing. Throwing out rates is unlawful because the rates have no basis in the reality that is your situation. In order for them to give you an accurate quote they need to conduct a full loan interview (which means completing the Residential Loan Application – 1003) and reviewing your credit history. Plan to spend 30 minutes on the phone with each of the companies that call you. This way you’ll get 4 solid offers based on reality, not based on hype. Anyone giving you a quote without a firm understanding of your situation is just trying to wow you to get you to commit to them. Additionally, each loan officer will want to pull your credit history to get your credit scores. While they do need this information, it also gives them a good sense of how motivated you are to work with them; kind of like when a car salesman convinces you to take a test drive – it’s a milestone in the sales process.
Since you now know that all 4 lenders are going to want to pull your credit you can be prepared by ordering a copy of your report ahead of time at www.myfico.com. This helps you in three ways. First, you know precisely what your credit score is, you don’t need to believe anyone else; you eliminate multiple inquiries on your credit, and you avoid any more calls from new suitors. That’s right, new suitors. When your credit is pulled from the three bureaus (Equifax, TransUnion, Experian) they turn around and sell your information to other mortgage companies as a new lead. They can do this because the credit inquiry on your report is specific to a mortgage inquiry; Equifax and/or the other two sell these leads at $20 a pop to a new lender as a lead and you get more harassing phone calls from people who know you are shopping for a mortgage and want to swoop in to win your business. It’s an ugly fact of the credit business these days.
With your scores in hand from myfico.com you can give your score information to the loan officers and they can accurately quote you with out having to pull a new credit report; avoiding the above scenario. Once you commit to one of the lenders then you can authorize them to pull a report. They’ll need to do this to underwrite your loan.
4. Don’t write off the other lenders once you’ve found someone you want to work with. Most of the lenders don’t charge any upfront fees such as a lock fee or application fee to work with them. If one of the companies does disqualify them right away. There are too many companies that will work on your behalf with out any money up front. This way if they don’t deliver you are not out of pocket any expenses. You only pay once you receive the loan on the terms you’ve agreed to, which I would argue is the only way to do it. Keep talking with the other lenders, or at least keep their numbers. If something begins to smell fishy with the company you’ve decided to move forward with, pick up the phone and bring another lender back in to the conversation. You can move your loan forward at more than one mortgage company and see who gets you the best deal in the shortest time and close with them. This sounds cruel if you’re concerned with the fact that some loan officer could work on your loan for nothing; but just remember we are working on getting you the best loan, not feeding loan officers. Trust me, most wouldn’t care if you didn’t eat either.
Bottom line for number 4, keep your options open until your loan is closed; and don’t be afraid to get a second opinion or walk away if you feel uncomfortable. There are a million mortgage companies out there who would be ecstatic to earn your business.
5. A general truth that applies heavily to mortgages: If it’s too good to be true, it probably is. Mortgages are like oranges. If you go in to a supermarket and shop for oranges you’ll see different stickers on the oranges. Those stickers represent different orange companies. Some companies might be slightly more expensive than others, but for the most part all oranges will be priced the same. They are a commodity, just like mortgages. This is important. If you went to a store and saw that every orange was priced at 50 cents per piece, but then in the corner there was one orange in a bin that said 25 cents per piece, would you want to choose that orange? No! There is obviously something wrong with that orange Ã¢?? the price is too low compared to all of the other oranges, there must be something about it that just isn’t right, the price is too good to be true.
The same goes with mortgages. Most lenders will be within .25% of each other on a similar program. If you have someone who is more than .25% better than everyone else, use caution. Check bankrate.com or another independent site to see if that rate is available on the market. Check the going rate for the type of loan you are looking for, if it isn’t close on one of those sites, its most likely not actually available to you. Remember, if it’s too good to be true, it probably is. Double check any interest rate quote against a disinterested third party, like a web site from one of the major banks.
6. Lastly, know who you are working with. Get the company name and their license number they use to transact business in your home state. Go to the Better Business Bureau online at www.bbb.org and look up that company. Check their rating and their complaint history for any signs of shady business practices. Go to your state’s department of real estate or financial institution’s web site and look the company up. Verify their license is in good standing and that there hasn’t been any regulatory actions taken against the company. These two steps will go a long way in making sure you’re working with a reputable lender.
These six steps will get you off on the right foot when getting a quote online. As long as you use these and always do your due diligence on anything you are being told, you will put yourself in a position to end up with a great deal. The moment you get caught up and try to take a short cut, pick the first lender you speak with, or choose the one who catches your eye with the flashy rate and closing costs, watch out, you could be heading in to some dangerous waters. If you would like more information on securing a great rate through the internet please email me.