Shopping for a mortgage lender by shopping ads for low rates and fees is a bad strategy.
When you shop for a mortgage by looking for the lowest rates and fees in advertizements from lenders, you can certainly get a loan, but there are many pitfalls and hidden subleties that will cost most people hundreds of dollars. Unfortunately, you wont find out until you begin to move thru the process. When you follow this approach, the odds are against you that you will get the lowest cost for your situation. Here’s why….
Here are 3 reasons that advertized rates and fees can lead you astray.
1) Disclosure laws require that only some of the costs are disclosed in advertizing. Lenders generally won’t tell you the costs and fees that they are not required to disclose until you get a Good Faith Estimate. Be careful when comparing APR. This is a requred disclosure in all advertizing, but unless you know the details behind the calculations, it can be very misleading. APR includes only some the cost and fees to get a loan. Also, it is very easy to pursue the lowest APR and get the wrong loan for your situation, or get stuck with extremely high hidden fees.
2) The assumptions used are critical……….. Every loan and borrower are different. In order to get the rates and fees for your loan, your lender/broker must ask several questions about: your home, down payment, loan amount,debts, FICO scores, income, and type of loan.
If you don’t go through these questions with your broker, he will assume the best case scenario in order to give you the impression that the rate, costs, and fees are very low. This won’t give you a good idea of your final outcome. It takes about an hour to go through these questions.
3) Many lenders use ads that contain phrases like “no points”, “no fees”, “no out of pocket costs”, or “no costs”. It is a fact that there are always costs to acquire a new loan. When phrases like these are used, they are designed to do nothing more than confuse the buyer into thinking they are getting something for nothing.
In the end, picking a lender based on lowest advertized rates and fees will most likely lead to a higher final cost (by several hundred dollars) and a surprise or two along the way.
And here’s what you can do about it……
The only way to get a clear picture is to get a GFE from a small group of lenders/brokers that your trust (see our video on how to get the best rates).
If you pick a lender based on their advertized low rate and fees here are some clues that you are headed for a surprise. If the Good Faith Estimate they give you is different from what was in the ad or if they give excuses as to why you are not getting that low rate ( such as a “low FICO score”, “Rates went up”, etc) , this is just a start as to how they will treat you during the rest of the process.
Welcome to the Neighborly Way……
When you come to us, we provide an extended discussion about all the specificd for your situation and the implications that they have on you. We provide a full disclosure of all costs in writing, up-front. We don’t want you to be surprised later in the process.