The media today is filled with stories of people who somehow ended up with a loan that they couldn’t afford and now are in serious financial trouble and facing choices that are not pleasant.
Were all of these people ripped off by a faceless army of unscrupulous loan officers who have now moved on to other industries to sell other things to unsuspecting victims?
I don’t know for sure — but I will bet you a Diet Pepsi that most of the people who are now facing terrible options couldn’t tell you exactly how much money the company/loan officer made by “selling” them their loan.
And if you ask me, this “mystery” is a key player in the whole mortgage mess — the consumer has no idea how much the product (mortgage loan) and service (lenders services such as sales, processing, underwriting, etc) they are paying for.
It is just too complicated.
And it still goes on today.
So, here are 3 quick tips that you can use to tell if you are “getting a good deal” or if you are “getting ripped off”.
Get a Good Faith Estimate from at least three lenders.
When shopping for a loan, there are three things that are key to getting a good deal — Interest Rate/Program, Total Fees and Service. Two of the three you can put into numbers. One, you cannot.
The only way to get an apples to apples comparison is to get a Good Faith Estimate from each lender and compare. Sometimes they come in slightly different formats, but usually it is somewhat easy to look at all three and see who has the best deal. The only thing a Good Faith Estimate won’t tell you is how good the service is that the loan officer will provide.
If you still can’t tell who has the better deal based on the Good Faith Estimates — give a copy of all three to each loan officer and say something like “uh, can you please tell me who has the best deal?” and watch them scramble… except for the one with the best deal! If you aren’t comfortable doing that, you can always ask a friend who works in a related industry, usually they have enough knowledge to help you decipher the mortgage-mumbo-jumbo-jargon that makes up the Good Faith Estimate.
Be aware that a “par” rate may be completely different at each lender, but start your shopping by getting the loan officer to use a “par” rate.
Have you ever called a mortgage company and started the conversation by saying “Hello, I was wondering what your rate is today?” If so, it is a fair question — or at least, it should be a fair question. The problem with this question is that each lender has many different rates sometimes many different times each day, so there really isn’t an exact answer.
Rather spending time on a long-winded explanation of mortgage rates, just be aware that you want to have the loan officer quote you a “par” rate to start with. You may want to buy your rate down for a lower interest rate or you may want to accept a higher interest rate in exchange for lower closing costs once you know who you are going to work with — but to begin the shopping process, always get the loan officer to quote you their “par” rate.
Check references on a loan officer from at least 3 clients before you decide to go with her or him.
Once you have narrowed your search for a great loan officer down to two or three of them, ask them for references of happy clients. You may be surprised to know how many people don’t do this. I rarely, rarely see it done. But it should be done all of the time! Who better to ask if a loan officer can deliver on what he or she promises or is someone that you can trust than the people that they have helped recently?
If they have happy references, they will easily be able to provide names and numbers and even tell you that they will be happy to take your call. If they don’t have happy references? Watch the red flags start flying and just try not to miss the bright red blinking light that this will set off.
In my experience, there are many loan officers with many happy clients and there are many loan officers with many unhappy clients. There are very few loan officers “somewhere in between”.
If you do these three things, there is still no guarantee of a happy, successful financing or refinancing of your home — but it will cut the risk of you being disappointed down substantially. By asking loan officers to quote you a par rate, comparing at least three Good Faith Estimates and diligently checking references, you can increase your chances of getting a “Good Deal”!