When Lenders Compete ... Is That the Way To Go?

An ongoing lawsuit against a website that allows advertisers to post their rates, suggests that when lenders compete, you still may not get the best rate.

The lawsuit alleges that lenders post rates so low they can't honor them. Then when the borrower is committed to the loan, they switch him or her to a higher rate. That higher rate is often worse than the honest rate offered by other lenders.

Some websites actually resell your information to multiple mortgage brokers. Keep in mind when multiple mortgage brokers run your credit you are hit with multiple inquiries which could lower your actual FICO score. Lower scores limit your ability to qualify for certain loans and also may increase your interest rate which could cost you thousands of dollars over the life of the loan.

Most websites that advertise the offer of "let lenders compete for your business" or anything similar to that don't necessarily guarantee that you are going to receive the lowest rate or the best deal. By submitting your information to these types of websites or companies you are really submitting your information to a company who provides your information to the mortgage companies who will pay them the most money. Therefore, the companies that are buying your information from these lead companies have to recoup these costs somehow and they will generally do that through "junk fees" or higher interest rates than what you might actually qualify for. You should always use a mortgage professional/company that comes highly recommended or someone you feel you can trust to provide you with a great deal. Mortgage brokers understand that you are looking for the best deal possible. They realize you have many, many choices as to whom you want to work with and that they are competing against all of them as well. Therefore mortgage brokers can be a great source of finding a top notch deal.

The truth is, a knowledgeable mortgage broker who is highly respected and experienced can get you a great deal, without any of the "bait and switch" tactics that are sometimes employed by unknown mortgage companies.

A good mortgage broker will match your needs to the right mortgage program. Sometimes the lowest rate is not the best deal - other factors such as no pre payment penalties and lower up front costs can make one program a better deal even if the rate is slightly higher.

Most advertised rates are either for perfect credit, and low LTV loans, or for Pay Option loans where paying 2% will actually eat away at the equity of your home. I would be weary of some exremely low interest internet advertising, and work with a professional that will be upfront and honest and not spit out numbers at random until they know your full situation.

When looking for home financing on the internet, be sure to deal only with mortgage companies that directly handle your loan application. Websites advertising having four lenders competing for your business often sell applicants' financial information, also known as "leads", to multiple mortgage companies and "leads" brokers. Loan applicants who submitted their financial information on those websites often find themselves overwhelmed by a sea of telemarketing calls from different mortgage companies for months to come.

The only way to shop around for a mortgage is when the mortgage professional has all of the facts. This means verifying credit score and depth of credit history including trade-lines, showing income documents, getting an appraisal done, and revealing any other items or documents that may be pertinent to a mortgage transaction.
Very often when shopping around, people ask "What is You Rate". There is no "One Rate Fits All" out there, as there are so many pieces to the puzzle that are factored in when the lender is determining the rate.
Many people find out too late in the process that the original rate that was quoted is no longer available, and this could be for a variety of reasons.
These reasons may include that the rates changed and they were not locked in, that the loan-to-value is higher because the appraisal came in for less than the borrower thought their home was worth, or that they don't qualify for the original rate that was quoted because the mortgage professional did not have all of the facts yet.
Very often when an individual shopping for a mortgage fills out many online inquiries or are trying to allow the "Lender to Compete", they ultimately end up going with whomever quoted them the lowest rate, only to find out later, after spending lots of time and money that they do not qualify for this rate, and can only close on their loan if they agree to a higher rate.
It is important to reveal everything to the mortgage broker or banker early on in the process so that things don't change later on.

When you shop for a mortgage, make sure you get a good faith estimate.

The problem with websites that offer competing lenders is that those lenders add the costs of advertising the website into your loan. Working with an independent mortgage broker can be advantageous because of their low costs and access to numerous lenders wholesale prices.

When shopping lenders, be sure to look at the Annual Percentage Rate (APR), located on the Truth-In-Lending Disclosure Statement. This figure represents the total cost associated with obtaining this particular loan. It is a great tool for comparing the costs charged by different lenders.

A reputable mortgage broker can help you shop from hundreds of lenders without having to pull your credit everyday. A mortgage broker can help you shop for the best lender for your situation.

When you apply with a lead broker online - which is what most of these advertised services are - you are just opening yourself up to an onslaught of phone calls exempt from the federal no call list. The bidding will be for which company can tell you the biggest lie so they can get the process started and then tell you right before closing what your real loan program will be.

When lenders are competing for your business it can be a wonderfull thing. Unfortunately it also can be chaos. It means there can be as many as 4 times the amount of work to be done on your part. After all most lenders need the same information. Now instead of sending it to just one trusted advisor you may be sending your information to 4.

However it can of course lead to lower overall loan costs.

This Term ''When Lenders compete etc etc'' is so wrong. I think that some of the new mortgage laws should be based on advertising such as this. Lawmakers should look into the true meaning of this statment so commonly used by lead generating companies.
Some of these companies are only in the business to get the lead from the borrower and sell it to the highest paying bidder, who needs to make up this cost for the lead as well as the other leads he has bought into the one loan. This is a tactic that is hurting our industry. This is a bait and switch.
The borrower doesn't win he pays more most of the time as well as gets harrased by 4 or more companies trying to get their business.

Be sure to ask each company to remove you from their telemarketing lists asking for a name and contact number.

» DISCLAIMER: The information contained in this article on 'When Lenders Compete ... Is That the Way To Go?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.