October 23, 2000, Revised June 30, 2006
"I am about to shop the mortgage market. Can you give me a handy list of
the mistakes I need to avoid?"
Here are some of the worst.
Select The Loan Provider Offering The Best Price Over The Telephone Or
In The Newspaper
If you cast a wide net, you are bound to find a rogue who will beat all
the other prices, but has neither the capacity nor the intention of
delivering such prices. His objective is to rope you in and move the
process along until it is too late for you to back out. At that point,
he raises the price using any of a dozen tricks available for that
purpose.
Remember: Because the market is constantly changing, you can’t hold a
broker or lender to a price quote until you lock the prices. A lock is
the lender’s agreement guaranteeing the prices.
Assume That You Can Shop Lender A Today And Lender B Tomorrow
Because of market volatility, prices obtained on different days are not
comparable. Unless you shop all sources on the same day, you are wasting
your time.
Solicit Price Information Without Providing All The Information About
Your Loan That May Affect The Price
Prices vary with numerous borrow er, property and transaction
characteristics that lenders believe affect their risk and cost. These
include loan size, credit rating, type of house, your ability to
document income and assets, etc.
Unless informed to the contrary, lenders quoting prices assume a set of
standard specifications that generates the lowest price. If the specs on
your loan differ at all, the price will be higher.
For example, lenders assume you are purchasing a single-family house as
your permanent residence. If in fact you are buying a condo, or the
house is intended as a second home, expect to pay more.
Accept a Mortgage Broker’s Verbal Assurance That You Have Been Locked
With The Lender
Some brokers tell the borrower the price has been locked, but don’t lock
with the lender. If interests rates don’t rise between the supposed lock
date and the closing date, the broker makes an extra profit. If interest
rates spike during that period, which is unlikely but always possible,
you’re left holding the bag.
Don’t be afraid to ask for written confirmation of the rate lock.
Allow The Price To Float Without An Agreement With The Loan Provider
Regarding How The Price Will Be Determined At Closing
Some borrowers elect to allow the price to "float" -- change with the
market -- until shortly before closing. Such borrowers are told they
will receive the "market price" at the time they lock. Few loan
providers, however, explain how the market price is determined.
The market price at closing should be the price available if the loan
were delivered immediately. This is also the price quoted to new
customers electing to float on the day you lock. Because the lock price
is always higher than the float price, floating should save you money if
interest rates don’t rise.
The reality, however, is that in the absence of an agreement to the
contrary, the market price at closing is what the loan provider says it
is. And many say that it is the 30 or 45-day lock price, rather than the
float price.
Assume That The Loan Provider Who Offers The Best Price On One Type Of
Loan Will Also Have The Best Price On Another
It is common for borrowers to shop the loan they think they want, then
change their mind later in the process. For example:
*They begin thinking they want a fixed-rate loan, then switch to an
adjustable.
*They begin thinking they want a 30-year term, then switch to 15-years.
*They begin thinking they want a zero-point loan, then switch to 3
points.
Such switches may invalidate their shopping because the loan provider
with the best price in one loan category may not have the best price in
another.
You can avoid these mistakes by following any of the paths below:
Upfront Mortgage Brokers
(UMBs) will shop the market for you and provide professional counsel
on your mortgage options. Their fee to you is set upfront, and if you
get it in writing, it is guaranteed by the professor. Recommended for
those who want the maximum assistance from a trustworthy source.
Fixed-Markup Lender allows you to find and price compare a wide
range of mortgage options on-line so you can make your own selection.
This lender discloses his wholesale price and markup (comparable to the
UMB’s fee), which is guaranteed by the professor.* Recommended for those
who want to control the mortgage selection process themselves while
being assured of fair treatment.
Shopping For a Mortgage On-Line explains the advantages of on-line
shopping, ranks the web sites worth shopping, and explains how to use
them. Recommended for knowledgeable borrowers with the capacity to
navigate different web sites effectively.
*The markup disclosure and the professor's guarantee apply only if
Amerisave is accessed through this site. The professor is paid by
Amerisave for generating leads.