I rarely reblog... but what an excellent post by Phil Faranda... I have been in the mortgage industry for 18+ years and have lost my fair share of borrowers to lower interest rates quoted. I usually follow up and find that the loan officer failed to disclose a rate lock period up front, or didn't properly educate the borrower on a specific loan program, which could cost thousands of dollars... overall, does a lower rate by a loan officer then mean much? Not always.. there is more to it than just the lowest rate and Phil does an excellent job talking about it. Especially those that just advertise low rates online. I call it the 'low ball' rate or the 'fluff' rate ... Phil, excellent job with this..
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.
Now, 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.
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