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Interest Rate is the Wrong Reason to Choose a Lender

Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

In the almost 400 transactions I have brokered since first being licensed in the 1990s, anytime there was a problem with the mortgage and the buyer was asked how they chose their lender, I cannot think of one instance where they did not say some variation on the theme that the bank was chosen for quoting the best rate. 

In the almost 400 transactions I have brokered since first being licensed in the 1990s, anytime we noted that a mortgage loan officer did a great job and the borrower was asked how they chose their lender, I cannot think of one instance where they did not say a variation on the theme that the lender was a referral from a trusted source. 

I was a loan officer from 2001-2006Now, since I can point to dozens and dozens of transactions where the lender stunk and they were chosen for their rate, and there were also dozens of great jobs by lenders who were trusted referrals, the correlation strikes me as very strong that choosing a lender based on rate alone is inadvisable. Disclosure: I was a loan officer from 2001-2005. 

Sadly, the "best rate" is a myth. The factors that go into locking a mortgage rate include the down payment, credit rating,  debt to income ratio, length of the loan, and a variety of other matters which makes quoting a prospective borrower a rate on the first meeting without a full application irresponsible at best. Published rates are based on assumptions that are so ideal that most borrowers either don't qualify or must pay higher costs to achieve. 

Moreover, rates vary on a daily and often an hourly basis based on the bond market and other financial indices, requiring extreme personal attention and knowledge of the transaction process to assist the borrower in "locking in" their rate at the correct time. 

Lastly and perhaps the most bitter irony of it all is that most consumers don't understand that the lenders all operate in the same market for money. If you walk into the corner bank, Banana Funding Corp at the mall, or log onto Fancyrates.com and ask pricing on their 30 year fixed conventional rate for a conforming loan with 20% down payment, you may get different answers when you ask what rate you'll qualify for. But here's the truth: conventional loans have been bought on the secondary market by Government Sponsored Entities (GSEs) such as Fannie Mae and Freddie Mac for the same prevailing market rates since the Beatles dominated rock music. The only variations have ever been the profit margin. What's that mean to you? Simple: within reason, you can negotiate your rate. 

With those factors in play, the smart consumer should therefore find the best, most trustworthy, service oriented lender they can find, who will work hand in hand with the real estate brokers, appraisers, title and attorneys, and who will be able to troubleshoot and navigate obstacles as they arise. This not only ensures a smooth transaction, it shields the borrower from bait and switch moves, junk fees, last minute changes, and the lack of accountability that we all too often see in web-based bargain lenders that raise screwing up deals to a high art. 

Imagine that. You choose you lender the same way you choose the agent, attorney, inspector and plumber: the best person for the job. The numbers take care of themselves because a true professional will always watch out for you. 

Gay E. Rosen
Julia B. Fee Sotheby's International Realty - Larchmont, NY
As Real as Real Estate Gets!

Hi Phil: Nice post and well said. I cringed when a friend negotiated on her mortgage rate and fees BUT I knew she was in good hands and at that point it was between she and the lender... It never hurts to ask. Best, Gay

Jan 21, 2011 02:04 AM
Retired from ActiveRain
Baker, OR

The same can be said for choosing an agent based upon who will work for the lowest commission.  Many times you do get what you pay for.  There are many, many factors to weigh when choosing a lender or an agent.

Jan 21, 2011 02:06 AM
Markita Woods NMLS#196099
Fairway Independent Mortgage Inc. - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA

This is an excellent post...worthy of a reblog. Many times clients think the lowerst rate is the best deal but in the end the discounted rate ends up costing them more.

Jan 21, 2011 02:17 AM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Just blow the covers off this practice, Phil.  I agree and great post  Your mortgage experience will end up being about service in my experience as well.  The rate can end up being the same if you negotiate well.  I always recommend my clients use a local rep to get the best service.  I always ask them -- "Imagine your wonderful rate is about to expire and the file is late and we can't get cheaprates.com on the phone.  What then?"

Jan 21, 2011 02:59 AM
Greg Miller
Ruoff Home Mortgage - Sarasota, FL
Florida Home Loans - Conventional,FHA,USDA,VA

You nailed it Phil, I see this stuff time & time again. This past fall I had a acquaintance from church who was shopping for a refi rate. It went with a big natl. bank for a 1/8% better rate. It came up to me at church last week to let me know that he just closed "130 days". The sad part is, if he is ever in the same situation again, my gut tells me he will do the same rate shopping. Some people just never learn. Again nice post.

Jan 21, 2011 03:11 AM
Karen Feltman
Cedar Rapids/Iowa City, IA KW Legacy Group - Cedar Rapids, IA
Relocation Specialist in Cedar Rapids, Iowa

There is definitely a correlation with the reason that they choose a lender.  I cringe when I see a lender that is not local.  I prefer to be able to "see the whites of their eyes" especially if they begin to dodge your calls when it is going south! 

Jan 21, 2011 03:16 AM
Jerry Morse
The Morse Company - Janesville, WI

And if you have been in the business awhile, you know who the professionals are.

Jan 21, 2011 03:26 AM
Susan Thompson-Solomons
Monument Sotheby's International Realty - Solomons, MD
Southern MD Real Estate-Solomons Specialist

I had written a blog on this same issue earlier this month. It's so important for buyers to understand the underlying premise of rates and the impact of the choice of a good lender on their transactions.

Jan 21, 2011 03:28 AM
Ryan Case
SCA Real Estate - Anaheim, CA

I partially choose lenders over rates, but strong lenders that can close are an equally important factor

Jan 21, 2011 03:32 AM
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Great post....I have a mortgage JV with my Keller Williams Office and I am pleased to say the both of my loan officers do business in the same manner...


Cory Barbee, Team Leader

Keller Williams North County San Diego



Keller Williams North County San Diegoq

Jan 21, 2011 07:44 AM
Patrick McClenahen
RE/MAX Realty Professionals, Inc. - Harrisburg, PA
The Real Estate Guy

Well said.  Referrals from trusted sources have worked for me most of the time.  My list of lenders I refer business to is a short list and rates are not how they earned being on the list.

Jan 21, 2011 08:12 AM
Pam Dent
Gayle Harvey Real Estate, Inc. - Charlottesville, VA
REALTOR® - Charlottesville Virginia Homes / Horse

Phillip - I just read Jeff Belonger's reblog and had to come over here and tell you what an excellent post this is.

Jan 21, 2011 09:23 AM
Lane Rogers & Patricia Zars
Z&R Realty - San Antonio, TX
Making Moves. Making a Difference.

Great post!  Its crazy how some people go about picking a service provider.

Jan 21, 2011 10:05 AM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Picking the lender based only on interest rate is the same as picking a real estate agent based on rate.

Jan 21, 2011 10:56 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Phil:  Amazing post!  I wish every potential client needing a mortgage would read it and follow your advice.  I've seen the results of poor choices way too often.  I'm thinking that we lenders should have something like a baseball card that has our stats on it.  The card would showcase our successful closing rate.  Now THAT is a stat that should be considered by clients ... 


Jan 21, 2011 11:05 AM
Roy Kelley
Retired - Gaithersburg, MD

Well done post. Congratualtions and best wishes for continued success.

 The colors of winter in Maryland. Life is good!

Jan 21, 2011 02:09 PM
Melanie Hedrick
Elite Texas Properties, the best homes from McKinney to Dallas! - McKinney, TX

Excellent post -- I was just discussing that exact topic in your headline yesterday!

Jan 21, 2011 04:45 PM
Brent Wells
The LivingWell Team - Prosper, TX
Dallas - Fort Worth


We have a list of certain companies that are closing wreckers. They can't or won't close a deal on time. I am sure they know how, they just tend to inject chaos and pain everything they are involved. We always request to know what lender a buyer is going to use simply to prepare our clients when we present an offer.


Jan 22, 2011 02:29 AM
Bridget "Mortgage Mama" McGee
SWBC Mortgage 410-960-2061 - Baltimore, MD
Maryland Mortgage Mama NMLS#196068

Thank you for a well-written and thoughtful argument for the professional lenders out there!  I have re-blogged and look forward to reading more!!

Bridget "Maryland Mortgage Mama" McGee 

Jan 30, 2011 02:00 PM
Fritz Barnes
BizProMedia - Aberdeen, NC

I have heard it said that if a consumer is adamant about finding the lowest rate, what they are almost certain to find instead is the best liar. 

Excellent post.

Jan 31, 2011 03:26 AM