Beware of 'Best Rate' Guarantees

Real Estate Agent with RG Realty Inc 598229
The sellers say "yes" they love your offer and the packing boxes are ready for your move. You've already been pre-approved by your lender, so now it's time to really start mortgage shopping.

Tip #5 - Beware of "Best Rate" Guarantees

You want to find the absolute best rate and terms on the planet, but how can you be sure you're getting the best deal? There are literally hundreds of mortgage lenders and brokers, so can any of them guarantee that you'll get the best rates and terms?

Search the Internet and you'll find companies that absolutely guarantee the best deal. Apply with such firms and they will guarantee you that if you find a better deal, they will match it or pay you money if they don't. Hard to beat, right? Maybe.

A "guarantee" can be defined as something that assures a particular outcome. If you want a guarantee that you'll get the best rate, then some lenders will provide one. But step back for a moment and think of another industry that has been using a similar marketing technique for years...the automobile trade.

You've seen and heard them all. "Come to Bob's Motors and we guarantee we'll beat any deal!" or so the pitch goes. But if you ever try to accomplish that at Bob's Motors you may just find that there really are no two cars exactly alike. Or that Fred's Motors has the very same can they do that? If you think about it, it's nearly impossible, isn't it?

Mortgage rate guarantees vary, but there are two essential types: either the lender will pay you a marginal sum if they can't match a given deal or a lender will match the deal AND pay you a marginal fee. Either way, it pays to read the fine print. After all, if many lenders all guarantee the same thing, someone will ultimately lose out.

One popular lender requires that you fax the competitor's offer to them, including the lender or mortgage broker's name and contact information, your federal Truth in Lending papers and a Good Faith Estimate of Settlement charges--all with the same date as when you apply for the new "guaranteed" loan. After verification of the other lenders' data, you'll get your guarantee.

Another approach is to provide the lender with your underwritten approval from the competing lender. This is not a pre-qualification or pre-approval--your loan must have been completely submitted and approved by an underwriter AND it must have the same date as your new loan application with the guaranteeing lender. This is the stage where your closing documents are typically drawn.

There are two problems here.

First, verification of the terms may simply mean the lender called around and got a good faith estimate and rate quote from another mortgage branch, getting different rate and fee quotes than you submitted for the guarantee. Just being off by twenty bucks will kill the deal.

Second, all documents have to have the same exact date as when you apply for the new loan. This can be next to impossible to merely arrange, much less get accomplished.

Think about it for a moment when calling your current lender..."Hi, I'm applying for a mortgage company that will guarantee me the best rate but I need you to correct all your loan papers, disclosures, approval and good faith estimates to have today's date on them...can you do that?" Yeah, that'll happen.

Still other guarantees don't apply unless you close with the promising lender. You'll get the matched rate and terms and you'll also get a couple of hundred bucks for your trouble. Oh, one other thing, this lender asks that you sit by your phone for three hours while they verify the information you faxed to them, under the nightmare described above.

In some cases, of course, it's easy to offer a low rate or to match one. Just provide the low rate--and then raise the points or fees associated with the loan.

Mortgage rate guarantees are nothing more than a marketing tool, just as with any car dealership offer. There's certainly nothing wrong with savvy marketing, and sometimes such offers can be attractive--just be aware of the hoops, traps and exceptions likely to accompany any "best" mortgage-rate promises.

You can expect Tip #6 - "What You Can Say to Your Lender" tomorrow. It's a good one!

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