Mortgage Shopping Traps

Dictionary.com defines shopping as “To go from store to store in search of merchandise or bargains.” These days no matter what you want to buy whether it’s a new digital camera or TV or laundry detergent, there are ten or twenty different makers selling competing products with characteristics that make them almost identical in features and price.

Thus, in my mind, shopping actually consists of two phases, not just one. Deciding what you want comes first. Trying to get it at an advantageous price comes later. The choice of a digital camera is almost surely going to be made more on the basis of features rather than price. Gathering information about these features and determining which are most important to you is critical. If you do phase two without doing phase one, you’re likely to buy the wrong camera, and even if you got it at a good price, who cares? You wasted your money.

Getting information about products like cameras is easy. You can get a lot of information from the comparison shopping sites that show them side-by-side. But going into a store where you can see and touch them is even better. Best of all is going into a store and talking with a knowledgeable sales person. You want to get the benefit of that person’s knowledge so as to get the right camera.

I continue to be baffled at many homebuyers who “shop” for a mortgage before completing the phase one work. Many of the ones who call here all have made up their minds what kind of loan they want and just want a quote. Based upon my experience with the last 3,500 loans I have done, they have made some mistake in their assessment of needs. They are usually chasing whatever loan they read about in the paper. They sure don’t seem to want to listen to my advice.

In addition, the mortgage market is quite fluid, like the stock market. . When you buy a TV set if you leave one store and decide to go back later to buy there, you know the price is going to be the same as it was the day before. Not so. We get daily rate sheets because rates change daily. Getting rates from one lender on one day and another lender the next day could show disparities which aren’t real.

Worse, purveyors of mortgages can lie about rates without fear of regulatory repercussions! There simply does not seem to be any interest at the agencies charged with protecting consumers from this type of abuse by lenders who blatantly lie about what they can offer.

They also advertise rates that are not real. I see them on the Internet and I get those e-mails too. Interestingly, most of the time they aren’t even from lenders. They are from "lead generators" trying to get your name and then they sell it to lenders.

Even a Good Faith Estimate it is not binding on the lender. In fact, because the regulatory definitions are vague, some lenders deliberately low ball closing costs in order to induce homebuyers to apply. In short, while consumers can get a lot of mortgage information, it is of questionable value unless you know it’s coming from a reliable source.

Even if I’m not going to do business with them, I try to get the names of people who are shopping like this, because I want to follow up with them and see what they got when they go to the closing table. The results aren’t surprising to me. Usually they didn’t even get a reasonable deal. They got a rate that was even worse than the current market.

The people they are dealing with are, after all, deceptive, dishonest people and when they snare you as a customer, their objective isn’t to get you a loan; it’s to make a lot of money. They aren’t going to be satisfied to make a normal mark-up or commission like I would. They are going to try to make a lot of money while they can.

So my advice is to go to the equivalent of a camera store. Find a knowledgeable mortgage professional and get the benefit of his/her knowledge. The right person can help you set goals and map out a financial program that includes a loan that is best suited to your needs. It is more than likely that this person will also be able to find better loans than you can calling around on your own talking to people you never heard of and who you do not know you can trust.

Be careful out there!

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