While I have addressed this issue in a few of my other articles, allow me to address it in a bit more detail here.
The first thing the client should do is this: Accept that all lenders, whether a broker, a bank or a mortgage lender (know the difference?) get their money from the same place. While I am not 100% sure where that is, rest assured there is some big pile of money somewhere and it costs x% for you to get any of it. Know it, understand it, and use it.
What does change from bank to bank, broker to broker and lender to lender is how much of a “margin” they will accept. Margin is just another name for commission, revenue, tacos, bread or any other commonly accepted form of the word money. Margin is usually expressed in a percentage, like one point or one percent. That means, on a $200,000 loan, they company in question would earn $2,000. That’s step one. Find out who will work on the slimmest margin. As I’ve said in previous columns, it’s fun to watch or listen to a loan officer squirm when you ask that question.
So, what can you do to ensure that you’re getting the best value (notice I didn’t say deal or rate) for you? First, know what the national average is. In the mortgage industry, everyone and I mean everyone, is going to be within .25% in rate if the fees are the same. Which is just another way to say that in mortgages, differences between offers is measured in very small increments. So, know what the average is. Once you know that, you can set out to make sure that A) you are not above the national average and B) you are below the national average.
Next, know what you need. You may have to do a little research on this. In order for you, the consumer, to get the best value, you have to know what you’re shopping for, right? Assuming you get to that point it is a matter of finding two apples and comparing them. Sounds simple, right? Keep on reading…
How does one compare two apples? Especially when there are so many different types of apples in the first place! Most people shop for a mortgage something like this: “Hello, lender? What’s your rate? 6% you say? Great! Send me a good faith estimate!” That’s it. If I’ve heard one phone call like that, I’ve heard a million. There is one gigantic problem with that. How do you know it’s a legitimate offer? Because you have it in writing? Oh, dear reader, keep on reading…
First, it’s called a good faith estimate. Let’s look at that for a second. It’s good, not great. You have to have faith that you’re being told the truth. And it’s an estimate, not a guarantee. A good faith estimate is a tiny, useless piece of the puzzle. It’s basically the appendix or tonsils of the mortgage body. You can do without it.
So now what? If you can’t rely on the estimate, what can you do? First, you can go back up a few paragraphs and reread the part I said about knowing the national averages. If you’re going to rely on a GFE, then you should at least have some concept of what things should look like. Even then, dear reader, you must be weary.
There are two supremely important, but often unrequested, documents that tell a larger part of the story. The truth-in-lending statement, and the Uniform Residential Loan Application. Why are they so important? First, let’s look at the TIL. The TIL is a federal form. If I, the loan officer, lie on the GFE, I’m just a bad guy. But if I lie on the TIL, I am a felon. TILs don’t lie. Next, lets look at the URLA. Why is that so important? It is basically your life story on paper! If any piece of information on that document is wrong, then the lender can, and often does, come back and say “Well, I can’t give you the loan for which you applied because you got X, Y, or Z wrong. But I can give you this loan over here. The rate is 2% higher, and the costs are going to send you to the poor house…but at least we can close that loan for you.”
So, what’s the short version? Know what you need. Know what the national average is. Beat the national average. Don’t get fooled into thinking you can beat the national average by more than .25% and/or $1000 in cost. Use the GFE in conjunction with the TIL and the URLA to determine if you’re being given an honest offer.
One last piece of advice. Think you’ve found the deal of the century? Do you have the TIL, the GFE and the URLA and they all seem to be telling the same story? Lock it in! Don’t keep shopping. Get what’s called an interest rate lock agreement (IRLA). The IRLA, not to be confused with the URLA, tells you: A) That you’re locked, B) How long the rate is locked (15, 30, 45, 60 or 90 days) and C) What your fees are for locking in the rate.
Summary: Don’t spend too much time looking for the pot of gold. You’re better off, you will save time and money, and have piece of mind by finding the pot of silver. Once you have that pot of silver, do what Ronald Reagan suggested…”Trust, but verify.” Good luck, and happy mortgage hunting.