Today we’re gonna talk about how to spot a shady deal on your mortgage. We get questions all the time. “Well, I’m already pre-approved. I wanna look at this house,” and they send us the pre-approval letter and it may look great on paper, but what we’re finding out is it’s not a good deal.
It’s not. What I’ve seen a lot, this is a very competitive market we live in, a lot of the financing is starting out online, which is fantastic. It offers customers an easy way to start the process.
But what we’re seeing is the interest rate is not … There is often times the cost associated with getting a rate. So certainly not just see what your rate is, you gotta understand what the cost are to get that rate.
So, when I’m looking at a couple different mortgages side-by-side, I went online to a website somewhere, and one showing me like a three percent and one showing me five, wouldn’t the three percent be better?
Annual percentage rate, every single lender in America has to issue an APR. What that APR is, it is a combination of the interest rate being charged on a loan plus all associated closing costs with that company that are APR-related closing costs. Some APR-related fees would be a lender’s origination fee, a lender’s processing fee, a lender’s discount points they’re charging to get a particular rate. Those are three of the really big APR fees. Mortgage insurance is also an APR fee, but it calculates it into one annual percentage rate and that shows you how to compare lenders from one lender to the next. Okay?
So what would be a good rule of thumb on that percentage spread that would tell me just a quick … I’m looking at two of them. One has an APR of X, one has an APR of Y.
Right. Well, first of all you need to make sure you’re comparing apples to apples. You need to make sure … You probably hear lenders say that all the time, but it’s super important because if one lender’s at 4.5% and another lenders at 4.75%, well you’re not getting a good idea on … the APRs are gonna be totally different in that case. But where you really start to compare is, here’s X lender at 4.5%, here’s another lender offering 4.5%, but their APRs are way different. The one that that has the higher APR tells me that there’s more fees associated with that lender than with the other lender. So comparing APRs is important to look at and making sure that you’re comparing the same loan APR.
There’s a sheet that a lender’s suppose to give you. It’s the fee worksheet?
Yes, there is. Lenders call it different things, but once you’re under contract and you’ve started an application, a lender has to, within three business days, issue what’s called a loan estimate. Every lender in America uses a loan estimate. That loan estimate tells you what the APR is, it outlines all of the fees associated with that particular loan; and that is a good starting tool to start to compare your loan with, say Fairway Independent Mortgage or ABC Bank down the road.
I know you’ve helped out numerous buyers, and even my personal family, making sure we get the right mortgage, what are some of the horror stories that you’ve seen out there? I know I’ve seen a couple.
Well, there’s still a lot of people out there that just don’t understand the process of obtaining a mortgage. It’s a bit of a process.
It’s an intrusive process. I actually went online one time just to see what the process was like, that a consumer would see, and I completed an online application with a large internet lending company. Where the technology was fantastic, what the downside to it was, as soon as I hit submit on my application, I had 15-20 lenders calling me within five minutes trying to solicit my business. I mean, that’s their job, that’s what their supposed to do, but it was, for somebody that’s been in the mortgage business for 15 years, 14 years, it was extremely overwhelming for me. And so, what I’m seeing when consumers are starting there and they end up finding their way to me with fee worksheets that they’re getting from these companies, I’m seeing how expensive it is for them to obtain loans from some of these online lending companies that are out there. When I show them numbers to compare, they’re mind-blown at really how bit of a difference in companies make compared to where they initially start out at.
So, I would say, just being aware of, in going out and looking at two to three different places before you solidify your offer with any one lender, even me. I tell people, even when they’re referred to me, to go out and still shop because when you come back to me, I want you to understand you can trust me that I’m giving you the best offer that I possibly can on that day, and that it’s gonna start our relationship off on the right foot.
So when they’re applying for that mortgage or they’re shopping, can they just apply to any mortgage? Wouldn’t that hurt their credit?
Great question. I hear that all the time. Is your credit pull a hard inquiry? Yes, it is a hard inquiry, but a mortgage-related credit pull you can have done several different occasions within your shopping time, which is, I believe, a 45-day window by having your mortgage pulled. A mortgage-related credit pull will not affect somebody’s credit scores.
I could get pre-approved today with you, and then get pre-approved tomorrow with somebody else, and be able to compare them side-by-side and it won’t my credit?
Well, when it comes to your credit being impacted by a mortgage-related credit pull, it will not hurt. But when you’re shopping around from one company to the next, make sure you’re comparing their quotes on that day because the interest rates come out daily. They can change daily, sometimes three or four times a day. So it is very important that when you’re shopping around that you’re comparing terms at the same day or a similar time frame.
Right. So it sounds like also if you go online maybe the deal you see online isn’t the best deal?
Right. Oftentimes you see what the lowest rate is for a term, for a product that if you read the real fine print on some of the online deals or even deals that see from companies here locally, oftentimes the fine print will tell you what type of product that is and it may not relate to that particular customer.
Awesome. Is there any other ways to spot a shady deal when it comes to a mortgage?
Outside of getting it in writing, getting stuff on … If somebody’s not gonna present something to you in writing, I would likely run and run quick, and go somewhere to a company that will provide you something in writing. There’s nothing to hide. There should not be nothing to hide. Put it on paper. I like to educate people. Let them know what the process is like, talk them through the process. But yeah, if you can’t get anything in writing or you’re looking at a fee worksheet and your fees just seem to be a bit too high, then they probably are.