I’ve been very lucky to have a large number of really loyal clients that have also referred their friends and family to me over the course of many years. Do some of them still shop around after I’ve given them a rate? Absolutely, and I encourage them to do so.
But there is always reason to be cautious and conscious of some less-than-helpful business practices that still exist in our industry. You see, in the last 6-7 years we’ve brought a lot of much-needed regulation into our industry to limit the amount of damage that can be done by bad actors; but there are still a few things you need to do in order to shop smartly and avoid getting “stuck” in an unsavory situation:
Problem: Risk awareness. Be mindful of other factors even if you’ve always paid all of your bills, you’ve worked for the same company for years while making a high and well-documented income, and you have very little debt. Lenders assess the associated risk (which translates to your rate) based on scores of other things including your home’s value, the number of recent credit inquiries you’ve had, and other items that may all slightly (or significantly) change the loan scenario and affect your rate and eligibility.
[color-box]Solution: Start with good information. Don’t try to get too far without a real consultation with a reputable loan officer. Ask them about the underwriting guidelines for the program they are quoting you, and take copious notes. Don’t compare anyone else’s rate unless they have quantified those guidelines in writing (email works), as they may apply to your scenario.[/color-box]
Problem: Salespeople masquerading as loan officers. Good news: not just anyone can walk in off the street and become a mortgage broker any more, as a license is now required under federal law which requires mandatory education and testing. Bad news: getting a mortgage license only really requires you to understand what you can and cannot do legally. It is NOT a mark of technical competence, industry knowledge, or even basic ability. It ensures that the licensee is cognizant of the things he or she must do (or not do) in order to remain on the right side of the law. That’s it.
Many (most?) mortgage companies still rely on gimmicky ads feeding leads to a front line of “licensed” salespeople that have limited technical knowledge and instead spend their time prospecting and “selling”. The technical knowledge rests in the hands of their “processors” which you may or may not ever meet, and because you’re firewalled from the person that actually knows what’s going on with your mortgage, you may get multiple ham-fisted explanations from your salesperson/loan officer that your terms need to change, both before and after you receive the good faith estimate (sometimes even AT the closing table). Frustrating and unethical as it is, the tactic is to get you “off the street” and into the process far enough that you’re hesitant to “start over” elsewhere.
[color-box]Solution: Sniff out salespeople. Ask up front if your loan officer uses a processor and if not, how long the loan officer has been processing his/her own loans. If for any moment you feel as if you’re buying a used car, kindly excuse yourself and never look back. Myself or another advisor that has years of experience doing their own processing and field underwriting can often get a loan done from start to finish very quickly once you’ve already assembled all of your documentation, so don’t assume that “starting over” means your loan will take longer.[/color-box]
Problem: “I’ve been told to only use banks, not brokers.” For good reasons, mortgage brokers have gotten a bad rap and ironically, a lot of the banks that once flooded the secondary market with wholesale non-conforming mortgages that would eventually (and predictably) become “toxic assets” are now promoting the notion of their own retail loan officers as a wholesome and trustworthy alternative to the sleazy mortgage broker.
Do sleazy mortgage brokers exist? Yep. What about incompetent bank loan officers (who are exempt from licensing requirements)? Absolutely.
[color-box]Solution: Choose a broker you trust over a bank, and choose a bank with a good reputation for mortgage origination over a broker you don’t know. Brokers can move your loan from one lender to another without creating another hard inquiry on your credit report. That’s important and often necessary to optimize your loan to the lender that is most forgiving of whatever risk triggers you have. Mortgage bankers can do this also, but not all of them do and you often have the salesperson firewall to deal with again. Still some banks are very slow and may eventually turn you down for some obscure underwriting requirement that their loan officer didn’t know about, at which point you go to another bank and start over with a new hard inquiry on your credit report. In my experience in St. Louis, Pulaski Bank and Carrollton Bank both have excellent reputations for mortgage origination. NEVER use a broker you heard on the radio or who had a full page in the yellow pages: Companies with lots of advertising, salespeople, and other overhead are generally going to need to set their yields higher than a small referral-based brokerage and will thus have a higher rate for the same lender and program, even if they imply otherwise in their advertising.[/color-box]
Bottom-line: You aren’t buying a used car; you’re planning for your long-term financial health using what is likely your largest asset. If you get a rate that you can’t attach some trust to, then it’s not a rate that you can factor into your decision.