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Mortgage Shopping -- The Educated or Uneducated Borrower -- Part 2 of 2

education

Mortgages --- May it be a FHA, conventional, VA, or a subprime loan, you don't have to have a college education in mortgages or real estate. Yes, it can be confusing at times, especially for first time homebuyers. And what can even make it more confusing is if you are shopping for a mortgage or a home and you have two different answers or opinions when shopping from 2 different people. What do you do then? Just remember..... the cheapest or best rate doesn't always mean that it's the best deal.

So how do we make sure that this doesn't happen to us? Even if we think they are telling us the truth, how do we still know this for sure? I would be lying if I said that there is an easy answer. I will say this, I am glad that I am on this side of the fence, with 15 years in the mortgage industry. But you are asking, how does this help us.

I have said this many of times. Ask those that you trust and hold dear to you for referrals. Asking friends, family, co-workers, even ask your realtor if you trust them. But wait, is this a double negative? Shouldn't you trust your realtor if you are working with them? Think about this for a moment. There are also good people to help you from on-line. Don't believe everything that you hear and or read. There are some very good professionals that can be found online. Hey, I get about 20% of my business from the internet.

graduation cap

When talking to a lender, what to look for : (again, you don't need to be educated or educated in this industry) Some Red Flags to know and some basics to learn.

Someone willing to ask the questions and spend time with you, either on the phone or in person. Don't think that business can't be handled over the phone. I don't meet about 70% of my clients ever, but I still communicate and get the job done. So can so many others.
Make sure they ask you about your income, for at least 2 years, in depth and anything else you could tell the loan officer. Don't keep anything.
Yes, your credit is a very important part to getting a mortgage. But it is more about your credit itself than just the FICO (credit) scores. If you have shaky credit and the loan officer sees this after pulling your credit, but they don't go over it in detail? Red Flag!!!
Loan officers usually ask about monies that you have to buy a house or when refinancing. But if they don't ask where you have the money, how long that you have had it, and what types of monies that you. ie. savings, checking, 401-k; then this could cause a problem down the road.

What was listed above are some of the basic questions. But lets get into more of the details that aren't talked about as often and sometimes misleads the consumer into bad financing decisions.

Goals -- A good loan officer will ask you why you are purchasing or refinancing. How long that you might live in the house. If you have kids? How old that they are? Saving for college? Maybe a change of job that you know about, but didn't disclose this. That you could get a raise, etc, etc.

Floating or locking your interest rate -- This is probably my biggest concern from being in the mortgage business for 15 years. It's easy to get a consumer or a shopper in the door, especially if you have the lowest rate. But most clients don't ask if and when this rate can be locked in. They have so much on their mind. But right when you apply for a mortgage, you should be explained your options. If you get answers like : don't worry about, we'll talk about it later, trust me, etc, etc. Red Flag!!! Better yet, if you heard the market got better or worse and then confront your loan officer about this. And they say, it hasn't done much. Or don't worry about it because you aren't settling on the house for another 45 days. Red Flag!!! This is a major issue and extremely important every day until you actually lock in. Rates can move like a roller coaster at times.

Conclusion : It doesn't hurt to shop sometimes. But don't just shop for the best rate, terms, and/or fees all of the time. If you get someone that doesn't sound sure of him or herself, slight red flag. If someone states something that you find out is not true later on, run, don't walk. People make mistakes, yes. Sometimes give them the benefit of the doubt, but depending on what it was about. If it happens again, then definitely run.

Educating the consumer should be one of the loan officers concerns. Sometimes you just have to go with your gut. One word of advice, don't let your family members dictate your outcome, it can sometimes backfire. Take their advice and opinion as just that. But speak to a professional that does this for a living. Read this in regards to over shopping : Shoppers that shop themselves right out of the market……

Shop Shop, tisk tisk, oh what a relief it is? -- Mortgage shopping -- Part 1 of 2

Mortgage Shopping -- The Educated or Uneducated Borrower -- Part 2 of 2

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Posted by Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans on 08/22/2007 11:55 PM

Comments (20)

shopping, mortgages, real estate, fha, bad credit, red flags, mortgage, home loans, hud, no money down, fha mortgage

This post has been included in New Jersey Information Camden County, NJ Information Cherry Hill, NJ Information

20 Comments on Mortgage Shopping -- The Educated or Uneducated Borrower -- Part 2 of 2

AUG

2007

Jeff-Do you have a book that helps you to come up with these great topics? I like the simplicity that you use to explain these sorts of issues. I am going to look for a post dedicated to locking interest rates so I can learn more from a lenders perspective. Have you written that post yet?

Jeff - thanks for sharing another great post.... the lending world has so many complexities that it would make most people's heads spin and spit pea soup.... you certainly have a way of explaining it so everyone can get it.... keep up the great work

Jeff - Excellent information for the consumer. When shopping for a mortgage get a referal from people you trust, that makes sense. Most people shop around based on rate but more should be consider.

David..... no book. I wish I had one when I first came to AR, because I didn't know what to write. But I just started to think exactly what some consumers are going through in today's market. And much of what I am writing about is actually happening to people that I am talking to. Just thought this would be another way to educate others. Thanks for the kind words.

Thesa.... it makes my head spin when I hear some of the bs that the loan officers are feeding these clients. I can see that this is sales and competition, but boy, do they pull out some doozys. Thanks for the compliments.

Jennifer..... as I try to explain to so many. Shopping can be hard sometimes. So many different answers coming from different people and who to believe. I say that if these loan officers don't attack what I wrote about in their initial interview, this loan officer in my opinion might not be best suited for them. Thanks for the polite compliment.

Jeff,

Very useful info, I think consumers will appreciate this :0) it breaks everything down in very simple form..

Tom Weiss

Jeff - Excellent information for consumers to read and understand. You keep pumping out such good and needed consumer knowledge. Keep up the good work.

Thanks again Jeff. Educating the consumer is the key to moving forward in our industry and you're clearly committed to that. Your borrowers are fortunate to be working with you.

I'm sending my next buyers to your blog to do some homework before we go shopping. Now, wonder where those buyers could be???

Tom W. .... thanks, I am glad it came across simple.

Tony.... thank you very much. I love writing about this stuff, but it can wear on you. ;o)

Jim..... I truly appreciate those kind words and your feedback. thanks again.

Chrissy..... turn around, they are right behind you.... ;o) And after you send them to my blog, they can call me. ;o) Seriously, thanks.

AUG

2007

Jeff,

I have a question for you.

You said "It doesn't hurt to shop sometimes" so this implies it is often unnecessary to shop and compare quotes/lenders when getting a home loan. Could you please provide some examples when this would be the case in your opinion?

Jim Gilly... thanks for stopping by. It's not unnecessary. But some people put too much work into shopping and can sometimes shop themselves out of the market. Please read : Shoppers that shop themselves right out of the market……

There is a point when you just have to trust someone. Let me ask you this. If I told you my total fee to you was $5,000,

but I will give you the best advice,
be there for you, even nights and weekends by phone....
have great service
communicate, even if something negative would come up and not last minute
and you will get what I promise

Or, broker B shows you a rate of an 1/8% less with $750 in less fees. But you ask him questions and he doesn't always know the answers, he doesn't get back to you when he says he will. I bring up some good issues and ask you if he has talked to you about this... you say no... and my issues and questions are very important. etc etc...

Conclusion : the deal that you have on the table with Broker B looks better, but might not happen. I know many people that just shop rate and nothing else. There is a lot more to a mortgage than just a rate and fees. No questions asked.... I educate the borrower. Many don't..... but I still lose a lot of business in a year to promises, which end up broken. Just my thoughts.... if you ever have any questions, feel free to call or e-mail me. thanks, jeff

Very good information for the consumers! I especially love first time home buyers, because I love to teach them...I think its important for the consumers to realize that when red flags do come up, its not too late to check around. Its better than not closing on time or at all, or worse yet getting to the closing with different rates and fees originally quoted!

AUG

2007

Here is a hypothetical question I would like to throw out for anyone willing to answer.

Suppose you are a one person self-employed originator working out of a simple store front office with no other staff. Every day - five days a week, you get one person who comes through your doors and applies for a loan (half the loans new purchase/half refinance).

This person has a credit score over 700, at least 20% down or equity, has no credit problems and can verify income and assets. Each loan is for $300,000 and every application ends up closing.

Based on the above, what would be a fair originator/lender fee to charge each borrower? Please do no read any more into the information provided.

Kim..... I agree, I love first time home buyers because I love to teach and educate also. And I agree that the consumer should be made aware of red flags and what to look for. As you stated, sometimes pushing the closing a day or two, just to make sure that they still have the same deal. I see so many people have this changed on them at closing. Also.... thanks for the compliments.

Jim Gilly...... I am not trying to read into anything else.... but there are still two questions that need to be asked based off your hypothetical scenario.

Who is processing these loans? If I have no staff? Am I processing these loans?
And if I am reading your scenario correctly, am I safe to say that I would be originating 5 loans a week?

In regards to your question, since I feel that there are some holes in it, I will just throw out a basic number. I would safely assume a fee of $1,500 total. This would be the total of any fees up front or the yield spread premium. This is if I have no other staff and have to do everything myself. And to add one thing into this. Even though you painted an easy picture per client with their credit scores and down payments, I would still evaluate each client. Meaning, we can't assume that they all would get 30 year fixed rates. I always ask my clients goals and some other questions. It's just how I operate.

So Jim, a question for you. Are you a consumer that just happened to stumble across this blog? Are you in the lending industry? Just curious. Overall, thanks for your questions.

Jeff,

Thanks for your reply. Hopefully, a few others might lend in their views as well.

Just to clarify the questions you had, I would be assuming the person would be processing their own loans and it would be 5 per week. As a follow-up question, how many loans in a regular work day could you possibly handle? Would 3 or 4 be the limit or could more be done by one person?

Also, as I stated, this was just a hypothetical situation I made up so there really are no holes in it. I just wanted to see responses to the question as posed.

Regarding your comment you would evaluate each client, I would expect that to be part of the loan process. I don't know how anyone can sell any product or service, without providing the customer with at least some relevant information in order to help them make the right decision. Whether the customer gets that information, however, is another thing. You appear to be one that would provide a helpful insight to lead the borrower in the right direction, so I commend you on this.

Finally, I am a retired financial planner (CFP) who has taken an interest in the mortgage process and the people who are involved working in it. I have come to develop a keen sense on how this industry works and have been following a number of mortgage related blogs over the past several months. What I have discovered is very illuminating to say they least.

AUG

2007

Jeff,

Maybe structuring my example as I did was not as practical as it should have been. Instead, what would you consider a more realistic fee per loan for a small shop with the typical support staff that has been in business for several years, getting their clients from a variety of sources (referrals, realtors, etc) still keeping the other factors the same ($300,000 loan, credit score 700 plus, 20% down, etc)?

I have no idea how many support staff are needed or what they are paid but I would guess adding them to the equation along with not having someone just come through the doors each day unsolicited will have a major increase on the fee charged. I'll be interested to see what the more accurate numbers are.

Thanks

Jim

AUG

2007

Any reply?

AUG

2007

Jim.... Sorry about that, but I myself, have been extremely busy. It's the end of the month, so I am on top of my closings and taking new applications. When business was busy for many, the last week of the month is usually the toughest for all in the business. Especially processors, underwriters, and closers. Even with business down for many, mine has picked up. In regards to why others aren't stepping in and now giving you some answers? My opinion, many don't like to talk about this in public. Afraid maybe? Maybe their answer is higher? Who knows....

In any case ... in regards to your questions again. And just to put something out there. I don't want to sound rude here, but you still haven't told me why the questions and if you are in this industry. In all honesty, some of your questions are becoming to detailed and just can't be answered 100% because of your scenarios. The reason why, each loan is different, no matter how easy it may seem. Meaning, just because you have credit scores over 700 with 20% down, doesn't mean it will be easy and quick. This client could call me every day and take up an hour a day of mine. Which is why I am trying to explain this, because you had asked on how many that I could do.

So...how many? Well, if I am processing my own, that is too hard to say. And in all honesty, I would higher a processor, so your hypothetical question would be out the door. I would be better served with a processor for several reasons. Able to bring more loans in and be more available to answer questions and to explain things. When a client calls the processor often, this takes time from their job to process that loan.

So, 3 to 4 a day would be out of the question by one person. I would need to hire at least 2 assistants or junior loan officers then. It might sound easy, but it's not. No matter how easy the deal, the average loan application takes at least a solid hour and sometimes up to 1 1/2 hours, maybe 2. The problem with this industry is loan officers make fun of you if you take too long, over an hour. And then it goes to show that maybe that client doesn't get that loan officers full attention. Or maybe the right program and explanations.

you stated : I don't know how anyone can sell any product or service, without providing the customer with at least some relevant information in order to help them make the right decision. Well, then you don't know the average loan officer. I know so many with 4 to 6 years of experience and they still have no idea on what they are doing. Some can't explain... some can't give guidance, and some over promise.

Your second set of comments.... with a support staff and trying to keep some of the scenarios the same. And if my office is licensed, etc etc.... you would need to collect at least $3,000 in total revenue. And it depends if I am a banker or broker. Bankers have warehouse fees and such.

In any case, I don't mind answering your questions and giving you an idea. You say that you are interested. Is there more to this? There are just so many ifs, ands, or butts. And also a lot of unknowns. Again, each deal would be different.

Thanks for your interest and sorry for the delay.

Jeff,

Thanks for taking the time to reply. I was just curious on what people in the business charge for fees since very little gets posted on it from what I can find. I know things are seldom cut in stone and there will always be individual cases outside the norm but I was hoping a few would give some examples of how they charge. Like you said, I guess many either don't like to bring up the topic in public or maybe the thread was dying out when I first posed the question. In any case, thanks again for your answers.

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