By: Chris Klau
Shopping for a mortgage is truly unlike any other consumer shopping experience. Take for example a person in the market for the latest XYZ-model lawnmower. He may start by quickly scanning the Internet for consumer reviews, or he might visit a few retail stores to find the lowest price. The decision he makes isn’t necessarily thoroughly researched or justified; he simply buys the most sensible choice.
Shopping for a mortgage is also unlike shopping for car insurance. Someone in this position may call one company on Monday, another on Tuesday and a final one on Wednesday. After gathering all of the quotes, she makes a decision on Thursday based on the information she collected.
In fact, finding the right mortgage seems to be a unique shopping experience all together. And that can get you into trouble.
Because there are many different moving parts to mortgage pricing. The average consumer may only obtain five or six different mortgages in his lifetime. That means it can be even more difficult to shop effectively and efficiently. But while it’s difficult, it’s not impossible.
There are unfortunate, but sometimes understandable, mistakes that people make. Here are the three biggest ones lenders see time and time again and what you can do to avoid them:
Not Comparing Apples to Apples
If you try to apply the car insurance shopping process above, you’re likely comparing apples to oranges, and therefore not accurately comparing lenders. Mortgage pricing is a constantly moving target. That means that the pricing (rates and costs) can change daily or even several times in one day.
If you’re going to shop, make sure you’re doing so within a focused period of time. Remember that pricing is dependent on your personal situation. Things like your credit score, debt-to-income ratio, value of your home, the type and classification of the property you are financing, rate lock periods and the type and size of your loan all affect your options in a unique way.
Make sure you aren’t choosing a lender based on their estimate of taxes and insurance or third party involvement – like the appraisal, title work and credit report – since these things shouldn’t vary between lenders at the closing table.
It’s best to narrow down your lender choices; two or three should suffice. Then make sure you have quotes from the same date within an hour or two of one another. The lenders you’re working with need to all use the same information to analyze your situation in order to provide you with a summary of your options. This will help ensure you’re comparing accurate quotes from lender to lender.
How do you narrow down your list to two or three lenders you can trust?
Working with Someone You Don’t Trust
Trust is hard to quantify, but we all know it when we feel it, or more importantly, when it’s missing. How did you find the lender with which you’re considering working? Was she recommended to you by a family member or friend who had a great experience? Did you hear about him at your workplace or from a trusted co-worker? Is it a company that has a solid reputation? Figuring out which of these things you find most important and what would convince you to work with a specific lender can help when building the basis for a trusting relationship.
Ask some questions before starting the conversation with a lender. Does he have any client testimonials? Does she return calls and emails in a timely manner and when promised? If not, this can be telling of the type of experience you’ll have when you’re further along in the mortgage process.
It’s not uncommon to encounter a lender that promises the “best deal.” The odds are not in your favor at that point. If something seems too good to be true, it almost always is. Which is why you want to avoid this next mistake…
Calling and Getting a Quick Quote
This seems like it would be a good idea: Just making several quick phone calls and going with the lender that quotes the lowest rate. Right? Wrong! This type of borrower behavior is very common however, it’s simply a waste of time and resources. The initial estimate may not be relevant to your situation because a quote over the phone can’t be accurate without knowing your exact situation. Unfortunately, this gets a lot of people into trouble.
You want to make sure you’re working with a lender that asks detailed questions, who digs deep into your financial situation. This way the lender can use his expertise to give you a detailed summary of the exact recommendations he has for you versus obtaining a hypothetical promise of something that will never materialize.
Many borrowers get themselves in to the situation where they think they’re getting one thing, only to see something very different at the closing table. Often times this is because an interest rate was not locked-in when they thought it was, or pricing changed drastically from the initial quote because qualifications were less than ideal. It may even happen when working with an inexperienced banker who quotes incorrect pricing.
To avoid this situation, make sure you’re providing all of the necessary details and feel confident that your lender is listening so she can match you with the best program for your situation.
It’s human nature to shop around for the best deal. Everyone wants what’s best for their family and nobody likes overpaying for something. Just make sure that your intentions are lined up with the right actions. Knowledge is power and hopefully these tips will help you avoid costly mistakes so you’ll be able to navigate the mortgage market with a bit more confidence. And as a result, you will be more efficient with some of your most valuable resources: Your time and money!
For more tips about your home, money and credit, plus free tools to help you make the most of them – including a free credit score, home value estimate and home loan recommendations – check out Quizzle.com.
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Chris Klau has nearly 10 years of experience in the mortgage industry as the Director of the Mortgage Insiders at Quicken Loans, a team dedicated to providing home loan advice and solutions to team members, friends and family, and external partner companies.