Education is the Only Sure Consumer Protection

By
Mortgage and Lending NMLS 291249

Education is the Only Sure Consumer Protection

Borrowers Must Know How Properly to Shop For Loans.  

Life is better for all concerned when Your buyers know how to select competent lenders

FIRST, VERY IMPORTANT Rules: 

  1. Mortgage Rates, Points and Lender Fees are interdependent parts of every rate quote.  All parts must be comparied.  If any part is missing the Quote is worthless.Protect with Education
  2. Do not fall for "I must have your credit report and financial information before I can quote you a my rate" because this an absolutely outrageous lie.  It is a sales stragety to collect buyer information because the more data a borrower provides the less likely they will continue to shop other lenders. Move to the next lender if they will not provide the information you require.  

Important Mortgage Rate Shopping Tips.

ARMS are biginning to make a comeback as rates increase.   Borrowers should compare MARGINS, CAPS and INDEXES to make an informed decision.  

Know your credit score before you begin shopping.  Loan availability and the cost of your loan depend on your credit score.  Most lenders require a 620 - 640, or better, mid score.  A few FHA and VA lenders will allow scores down to 580.  

Do not allow any lender to run your credit until You select them as your lender.  Credit reports run by several lenders will lower you credit score. If you do not already know your credit score, there are several Internet companies that will provide a free credit report and FICO scores for an additional Fee. 

VERY IMPORTANT, Shop all lenders on the same day and time period.  MortgageRates change every day, sometimes several times a day. 

Insist that each lender price the exact same Rate.  You pick a rate to shop.  The rate does not really matter as long as it is currently available because you are looking for lender for the lowest total cost for the rate you are shopping.   Once you establish the lowest cost lender you can zero in on a rate-point-fee combination that works best for your situation. 

All lenders offer a range of rates and points for each of their loan types. Rate and points are interrelated, lower mortgage rates cost more points... higher rates cost less points.  Create a "Rate Baseline" by asking each lender for the same mortgage rate and then compare their points and fees for that rate.

Shop for a specific loan type, because each type is priced differently.  i.e: FHA, VA and Conventional loans, conforming and jumbo have different mortgage rates.  Insist that each lender quote rates for the same loan type.   Some lenders may present you with other options but insist they also provide a quote for the loan you are shopping for to establish a pricing base line.  

Shop each lender for the same mortgage rate lock time period.  You must ask every lender to tell you the lock period for the rate they are quoting.  Mortgage Rates increase incrementally for each longer lock periods.  I suggest shopping rates for a 30-day lock period.  Lock periods can vary but most lenders provide locks for 15, 30 and 45 days.   Some lenders quote their 15 day, least expensive price, which is not available until after the loan is approved.   If you find a lender initially quoting a 15-day rate, it would prudent to eliminate that lender from your short list.

If the Loan to Value is greater than 90% and the spread between the interest rate and APR are less than 0.75% the APR has been misstated. 

Insist the lender provide a detailed Cost Estimate before you complete an application.  You have a right to know to know the price of the loan before you apply.  A few lenders, even some large well-known lenders, falsely claim rates cannot be quoted until they have all your personal information.  This is an absolutely bogus sales technique, these lenders know that borrowers do not want their personal information spread all over town and their credit score lowered by several credit reports AND they know once a borrower provides their personal information they are likely to stop shopping.  Do not apply to any lender before you receive a Cost Estimate.

Will the lender allow you to lock your mortgage rate today?  You should be able to lock your rate on the day you submit your signed application as long as the signed application is received by the lender prior to 3:00 PM PT.  Most lenders stop locking loans at 4:00 PM PT this time is not universal so check with each lender for their lock cutoff.  I am not necessarily advocating an immediate lock unless market conditions indicate it is needed.  By allowing the lender think the borrower may immeditally lock the lender may provide a more accurate quote.

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Anthony Ebright - NMLSR ID #247647 Purchase and Refinance Mortgages 10/21/2009 05:08 AM
  2. Lyn Sims 10/21/2009 07:50 AM
  3. Judi K Barrett 10/28/2009 03:25 PM
  4. Nina Hollander 08/22/2013 09:22 PM
Topic:
Mortgage / Finance
Location:
California San Diego County San Diego Escondido
Groups:
Realtors®
Keller Williams 'Rainers
RE/MAX Active Rain Bloggers
Realty Executives
Century 21 Active Rainers
Tags:
mortgage education
wholesale mortgage rates
rate education

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Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

Andrew, when consumers understand the system they can make the system work for them.

Dan, comparing apples to apples is very difficult for consumers without some edycation.

Joesph, the nicest thing said so far.  Thank You.

Tammi, you are very welcome.

Paul, I am talking about the initial quote and lenders trying to pressure borrowers into an application and credit report before they find out if the lender is competitive.  For instance, would anyone shopping for a car allow a salesman to run a credit report before they received the price of the car?  A loan is a product just like any other and a company that requires personal information before they provide a price for their product is unbelievably arrogant... and consumers who fall for that guff are uneducated.

The consumer must also understand that a credit report must be run before the loan can be locked.  But locking is part of the process AFTER they have selected their lender.  AND, if the consumer provided incorrect information initially they must understand the rate can change.  They must also understand that rates change daily, often several times a day.  UNDERSTANDING COMES WITH EDUCATION.  (not shouting here the caps are for emphasis... ok so maybe I am shouting)

You need to carefully reread the post.  It does not say to lock as soon as possible actually it make no reference to when to lock.  It does state consumers should compare rates for the Same Lock Period when shopping for a rate.  The blog only states that borrower should be able to lock on the day the rate is quoted as a test for rate validity.  If a lender thinks the borrower is wants an immediate lock they may provide a more accurate quote.  But maybe if the wording confused you it confused others so I will go back and tweak it a bit.

I disagree, Borrowers are at risk of having their score dinged with several reports unless all the credit reporting companies are using expensive software that most credit companies will not purchase because it is costly.  Your advice can be particularly dangerous for borrowers with credit score just above the minimum allowable because a couple dings can disqualify them for any loan.

Verlyn, excellently stated, it is best when the two are combined.  The only thing is as we become more experienced we realize we need more education. 

 

Oct 21, 2009 04:00 AM #33
Rainer
204,707
Jane Cross
Homes By Cross serving Charlotte NC Real Estate Needs - Charlotte, NC

Bill, Just a wonderful view from an expert! Thank you for taking the time to compile it for the rest of us. It should help us all become a bit better with guiding our buyers into the loan application.

Oct 21, 2009 07:04 AM #35
Rainer
20,173
John Neibich
Home Savings of America - Prescott, AZ

My only counter to this is when a LO starts quoting rates and fees, without the credit report, somewhere later along the line, after the buyer has put down earnest money, the LO gets the credit report and there is some big, nasty, ugly item, like a NOD, or BK, that the borrower didn't want to talk about earlier.

When you asked the questions in Declarations, or would have asked them, except that the borrower didn't want to get an accurate quote, just a quote.

Experience, getting a full application, and asking questions of the borrower on the first contact avoids a great many other issues later on. Try explaining to a Realtor that their great buyer has a BK that they didn't tell you about; "Wasn't that on their credit report?" Yep, but I didn't run it, because they were shopping rates. I had a guy in our office who was an exceptional salesman, but a lousy LO, and he probably did more to blow up more transactions than the recession has; I've heard every excuse, but they always come down to not getting a complete application.

Oct 21, 2009 07:13 AM #36
Rainer
369,886
Bobby LehmKuhl
4 Malibu Real Estate - Malibu, CA
Exceeding Every Clients Expectations. Every Time.

Bill, as always a great post. Thank you for sharing this information. You are a professional!

Oct 21, 2009 07:40 AM #37
Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

John,  We may be talking about two different things.  The discussion is just about rate quotes.  A Pre-Qual or Pre-Approval implies you are past the rate quote stage and at that point an application and credit report are essential. 

If you are making a case that an application and credit report are required befor the intitial quote the flaw in your argument is that no matter how much information is gathered before a rate quote it is still just a snapshot until it is locked and rates are not locked until the lender is selected and the loan is in process. 

As for credit surprises, qualified loan officers ask credit questions as part of their initial quote process and always instructs the borrwer... if there are any undisclosed credit derogs the rates quoted do no apply.

However, let's get real, from the view of some lenders, (including all big box lenders) it is just smart business to intimidate borrowers into completing an application and credit report before the borrower receives rates to halt the shopping process. 

We all know that once we have the application and credit report we have a 70 to 80 percent chance keeping and closing the loan because the shopping process will almost always be halted.

Intimidation is the wrong way to conduct business and it creates the wrong mind set.

Small mortgage bankers and mortgage brokers must put the consumer first not just because it is the right thing; it is the only way we will keep the regulators out of our hair.  Government regulators controlled by big banks will eventually put all of us out of business and consumers will get to choose only between four big banks.

Oct 21, 2009 08:50 AM #38
Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

Bobby, thank you so much, that is a tremendous compliament and something to live up to.

Oct 21, 2009 08:53 AM #39
Rainmaker
64,664
Millie C. Legenhausen
Calcagni Real Estate, Hamden, Connecticut - Hamden, CT
CRS, GRI, CIPS, MBA, Realtor

Excellent post. Good points to bring up to our clients. Thank you.

Oct 21, 2009 09:04 AM #40
Rainmaker
225,458
Tim Bradford
Cleveland, OH
NMLS 250013

Bill,   Great post and could not agree more that Knowledge and Education is the key.  The only problem I have is some Realtors try to Educate their borrowers.  On a recent transaction a Realtor told there buyer that they did not believe in buying down the rate.   The convinced the buyer that paying a .50% Higher rate (for 30 Years) was better than paying ONE Point to receive a .50% Better rate.   It may not be relevant, but the lender the borrower choose was affiliated with the Realtors Brokerage.  A few months ago, I read that about 60% of first time buyers take the recommendations of their Realtor when selecting a Lender.   Maybe this means we need to educate Realtor and Buyers jointly.  

Oct 21, 2009 10:00 AM #41
Rainer
120,940
Kyle Jan
Scottsdale, AZ
Phoenix AZ Homes for Sale

Excellent post.  I think that some of the loan officers are getting defensive and attempting to justify their positions about pushing for the application.  If you ask the correct questions, you can give an initial quote.  We all want the application because we feel like we have a greater level of commitment.  All borrowers understand that the quote is just that, a quote.  If you ask pre qualifying questions, you will know what to expect once you see the income and credit.  I hate bogus GFE's.

Oct 21, 2009 10:15 AM #42
Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

Millie, thank you.  You are welcome to copy it and use it as an information flyer.  I send links to several blogs to my borrowers and the information has been appreciated and probably saved more then one from the evil, greedy, grasping hands of my competitors. :o) If you would like the links I would be happy to send them to you.

Tim, thanks again for the heads up on the new FHA condo approval process being delayed to Dec. 7th.  I modified my initial post.

Bad information begets bad information.  You are correct that we must educate everyone concerned.  As for keeping Realtors current we must become known and trusted information sources.  That is my purpose with blogs and my website at http://www.yourfhaguru.com.

Kyle, you are exactly correct.  I share your feelings about bad GFEs  Anything that misleads borrowers will eventually come back to haunt us all. 

Again it is all about industry and borrower education.  The bad guys can only thrive on the uneducated.

 

 

Oct 21, 2009 10:41 AM #43
Anonymous
Nancy Tossell

As credit restoration and education specialists, my partner and I think this has been an excellent conversation and just wanted comment on a couple of things.  We believe all people should know where their credit stands BEFORE getting ready to make a purchase. 

 As Tamara Heyward pointed out, the only site we know of to get a free report is at www.annualcreditreport.com.  It is important to let people know that this site still has plenty of opportunities to spend money, mostly on credit monitoring services, so they need to navigate carefully.  Since reports are not standardized, these can be complicated and hard to interpret.  Also, they have to request each bureau separately which does generate a lot of paper.  The advantage to looking at a tri-merge (obtained from a lender) is that the information is much more compact and the FICO score is included.

To get a true FICO score, one has to go to www.myFICO.com, and this does have to be paid for.  There are lot of scores being published out there and we call these FACO.  These scores can vary widely from the true FICO so they can't even be used as a guideline.

Hard inquiries (like from a mortgage company) do impact the score so anyone saying it doesn't is giving erroneous information.  We do not promote "shopping" within a certain period of time. But our definition of shopping is have multiple pulls with no plan.  There's no harm in buyers talking to more than one lender to see who they feel most comfortable with, then maybe narrow it down to 2 to compare.

We really appreciate Andrew Mooers' comment about increasing scores as much as possible to get the best interest rates.  Too much of our business comes from those who don't qualify and only aim for the minimum score.  Our approach is to teach basic credit management so our clients not only maintain their improved credit scores, but are encouraged to contine to improve their credit management.  This can in turn minimize overpayment of items such as cars and insurance and impact employment.  Getting the right education can save thousands of dollars, something we all can use.

Oct 22, 2009 09:09 AM #44
Rainmaker
199,340
Mark Velasco
Sharpstone Realty, Inc - Whittier, CA
Listing Agent-Whittier & Surrounding ciities

Great loan tips Bill. I always make sure that my Clients do these things. Points can add up quickly

Oct 22, 2009 06:04 PM #45
Rainer
20,173
John Neibich
Home Savings of America - Prescott, AZ

Oh Bill, yeah, you can talk about rates, fees, and points can be discussed, and a GFE sent out, as long as you state that you don't have the credit report, or a full app in the notes. I worked at one of the early, internet based discount lenders and we put our rates and fees right out front.

What always chaps my hide is working with someone, getting little info, and them trying to demand to know what rate they'll get, and then at some later point finding a big, hairy NOD monster hiding in the credit report. I also don't get how some LO's can play bait and switch games, or quote borrowers ridiculous rates and fees. We're all working with the same lenders, how does anyone believe that the last guy they talked to can get them 4% with no fees on a 30 yr fixed?

Oct 24, 2009 08:26 AM #46
Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

Nancy, that is good information, thank you.

Mark, good education makes for realistic expectations and smooth transactions.

John, good idea to put a note on the GFE.  Back in the day I was a heavy advertiser on Bankrate, Monster Moving and several others.  We always posted correct rates and APRs and would produce a GFE at the drop of a hat.  I was always in a state of Pissed Off because none of the sites would police the lenders who were obviously lying. 

Oct 24, 2009 08:49 AM #47
Ambassador
2,217,656
Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
BA, Integrity Real Estate Services -IDABEL OK

Excellent article.  I missed it when you originally posted. Lots of good information here for buyers.

Oct 28, 2009 03:24 PM #48
Anonymous
genniechan

Thank you for this very informative article of yours. You have explained everything well. I appreciate that you shared this to us. I ususally get my credit report score 

Jun 28, 2010 05:44 PM #49
Rainmaker
1,171,860
Charles Stallions Property Manager
Charles Stallions Real Estate Services - Pace, FL
Pensacola, Pace & Gulf Breeze Property Management

One thing for sure is education is king and knowledge is power in the hands of a buyer. Thanks for sharing and enjoyed all the comments

Jul 31, 2013 12:51 PM #50
Ambassador
1,610,008
Harry F. D'Elia
Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

WE need to continue to educate the consumer when it comes to real estate.

Jul 31, 2013 10:53 PM #51
Rainmaker
2,164,664
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Truly excellent suggestions, Bill. And I'm going to reblog this!

Aug 22, 2013 09:09 PM #52
Rainmaker
813,477
Bill Ladewig
Escondido, CA
Experience Is Your Advantage

Harry, thanks for the comment, education is the best consumer protection.

Nina, thank you so much for the reblog.

Aug 22, 2013 11:04 PM #53
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Experience Is Your Advantage
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