#1: The difference between retail and wholesale. Retail equates to banks, credit unions and direct lenders (some big direct lenders would be Quicken, Guaranteed Rate, Fairway, etc). Wholesale is using a mortgage broker who accesses the wholesale rates from lenders and through a much different cost structure, passes those savings to you.
#2: In general, the bigger the Bank the more they usually should be avoided for mortgages. There are exceptions to this. One major exception is the big and regional banks that have wealth management departments will be very aggressive in offering jumbo loans. They basically use it as a loss leader. They will give you a great deal and then get you into their wealth management where they make all their money off of you. When it comes to mortgages, a jumbo is pretty much the only time you want to talk to a bank. Otherwise, generally avoid banks though sometimes your smaller banks will have a pretty good deal.
#3: A great rule of thumb is if you see them advertising on TV they should be avoided. Quicken, for example, spends enormous amounts of money on advertising. Why? The marketing machine is fueled by overcharging on rates and fees. These lenders also tend to have call center type of loan officers with little experience and seemingly a “boiler room” type of attitude. Most loan officers can tell you many stories of hearing clients say “they said X to me” and in reality it is “Y”. They also typically will start off with what seems like a great rate and then charge 3 points in origination points. I strongly discourage ever using Quicken (aka Rocket Mortgage) or one of the other heavily TV spending VA lenders like Veterans United or New Day.
#4: I love credit unions. I am a huge fan of them. I belong to two of them. CU’s are usually your best bet for checking, savings, car loans, personal loans, equity loans or lines, etc. However, one area that they are not usually your best bet is mortgages. The reason is mostly about scale. There are some large CU’s but most are still relatively small. They do not do enough volume to be efficient and the large loan amounts take a big chunk of their reserves. Go ahead and check with your CU, they can offer some good deals, I have seen it and they will still tend to beat banks and direct lenders but still not usually the best bet.
#5: Rate is not the end all be all of doing a loan. You have the rate which of course is important but there are also fees and origination points. A typical game that is played is showing a great rate but then when you compare to another lender you see that you are really paying for that great rate. Often times as a broker, I am able to match the rate and give a credit versus the origination points they are charging. Be mindful of that.
#6: Use the Loan Estimate! Wherever you go, when you get the Loan Estimate, shop it to other lenders. You can just send it to the lender and let them come back with their offer or you can put more work in it and just shop and compare rates. What happens if you do? Worst case, you get the peace of mind that you are getting a good deal. Best case, you save yourself thousands of dollars!
#7: Your current lender is not going to make it easier than going to another lender. They will need to get all new docs or if it a streamline another lender can do a streamline as well.
#8: Unless you hate yourself and want to throw your phone away forever do not go to a website that ‘shops’ loans. First of all, they don’t really. All that they are doing is selling the leads to lenders. Second, you will get bombarded by phone calls and wish you never even heard of Lending Tree or whatever else it was that you used.
#9: Always shop lenders. Mortgage brokers do the shopping for you accessing multiple lenders and getting wholesale pricing. If you want to do the work for yourself, it is worth it. Not all lenders are created equal.
#10: Don’t make assumptions about what you can or can not do with a refinance. Talk to someone who actually knows. They can go over your options after figuring out your situation and your goals. The two main reasons to refinance are to gain overall savings or to increase cash flow. There are many ways to do this in a case by case situation.
#11: The better your credit score the better your rate. You are going to top out around the 740-750 area. So, don’t worry about getting an 800 credit score.
#12: If you have more debt other than the mortgage/equity loan or line then you might be better off refinancing all the debt into the home.
#13: Do not listen to Dave Ramsey when it comes to mortgages. He gives horrible advice when it comes to mortgages and then sends his followers to Churchill mortgage because he gets paid by them. It disgusts me. People trust him and he makes a lot of money off of that trust. Churchill is just another retail lender that I have seen Loan Estimates from that were certainly not competitive offers. Just ignore him when it comes to mortgage advice.
#14: If you are getting a mortgage, refrain from doing things like deposit large amounts of cash into your account or buy a new car or change jobs. Anything to do with your job, credit, income or money can cause problems for the loan. Even if you think that there should be no problem such as getting a better paying job. Before doing anything major with job, credit, income or money talk to your loan officer until the mortgage loan is done.
#15: Realize that the vast majority of down payment assistance programs are pushed by lenders who do them and realtors who want you to think they are helping you get free money. After all who wouldn’t you use a lender or realtor who is offering you free money?! The fact is that the vast majority of DPA programs are not free money. This is the way that many of them work… they are set up to give money in a form of a forgivable loan or silent second or similar arrangement. You must keep the loan for an extended period of time 5-10 years is most common. Once you do (meaning you can not sell or refinance that loan) then you are free! Here is the thing… that 3-3.5% of the purchase price that they gave you increased your rate. From what I have seen in recent comparisons the $10K a consumer got as ‘free money’ ends up costing them $30-40K over the period that they are locked in for, plus potentially not allowing them the opportunity of refinancing if rates drop. There are true grants out there (where there is no ties to the money) but most of these also have a higher rate. Extremely few and far between are actual grants that do not impact the rate.
#16: If you are veteran, a first responder, or in the medical profession- the great sounding program (Homes for Heroes is the largest one) the offers to get you money back may not be as great as it sounds. The realtor part of it is actually a good deal for you but the lender side where they typically pay for your appraisal (around $400-600) could very well cost you much more money in the rate and cost of the loan. Often these are usually retail lenders who have have large marketing budgets (there is a reason why they have to charge higher rates and fees/origination) that pay into these programs, which are relatively expensive (for a lender about $1800 a year for Homes for Heroes just to be part of their program and that is it). You can still shop the lender and you should.
#17: First time home buyer programs are usually marketing schemes. There are some benefits offered if you are doing a conventional loan which anyone can have access to. Other things are usually the DPA programs (see #15) and should be avoided. Most of the time that people hear about a friend or family member that got a great deal, that friend or family member has been duped.
#18: Most loans over 80% loan to value that doesn’t have mortgage insurance is costing you in a higher rate. If you are doing conventional loan, you can get rid of the MI later. If it is baked into the rate it is there for life of the loan.
#19: If you are building a home it is important to understand how a the builders relationship with preferred lenders most often works. The builders offers to give $10K in free upgrades for using their preferred lender. These upgrades actually are going to cost the builder maybe $2K if that to do but in return the builder get a large sum of money, say $8K for you using that lender. These lenders are almost always not competitive in the loan terms because they are betting that the marketing scheme of offering you $10K in free upgrades keeps you on the hook.
#20: A realtors ‘preferred lender’ can be good or can be bad. There is no way to tell. Here is how it works in the industry. Retail lenders who tend to charge more have bigger budgets to spend on marketing. They will ‘partner’ with realtors and pay for the realtors marketing (also sponsor things like their meetings, or holiday party, or conferences or whatever else) and in return the realtor makes them their ‘preferred lender’ so the realtor will refer you to them when you are not already using a lender. That being said, ‘preferred lenders’ that don’t do that stuff and the realtor has found them to be a good lender. They could be just very good at what they do. But the title of ‘preferred lender’ is more marketing and may be backed by money more so than your best interests. Overall, never get loan advice from a realtor unless they are the rare ones that are licensed for lending and actually know what they are talking about.
#21: You don’t need 20% down. Don’t keep waiting to buy when you are spending money away on rent. Every month you pay someone else’s mortgage (paying rent) is money you will never see a dime of again. As an owner you are building wealth. Remember, landlords are landlords for a reason. They are not losing money and on top of it are gaining equity. For most Americans, their ‘wealth’ is almost exclusively in their homes. It is not in retirement accounts or stocks etc but built up equity from paying down principle and appreciation of their homes which is historically pretty consistently 5% over periods of time (including booms and crashes).
#22: You don’t need perfect credit to get a mortgage. You can do a FHA loan with a minimum credit score of 580 with as little as 3.5% down of the purchase price.
#23: When picking a good realtor find out these things about them: A) Do they do this as a full time job or is it a side gig or something they do when they are bored etc. You want a full time realtor for the experience and focus. How long have they been doing the job. Experience counts for sure but keep in mind someone doing it for a year full time may have significantly more experience than someone who does it part time for 10 years. C) What is their availability. You want someone that will be available on your time tables and not theirs. D) How many houses have they sold or closed on? It will give you an idea about how productive they are. But keep in mind, someone who isn’t as productive might be hungrier and more flexible to you versus someone who is doing tons of volume.
#24: Always get an inspection done from a good inspector. Do not skimp here. A good inspector will give you very important info on the home even if there is nothing to be concerned over and potentially catch a very big problem. Keep in mind even the best inspectors will not be able to find out anything and everything wrong with a house. Find out of they do mold and radon testing or not and if it is extra if they do. Keep this in mind, this is usually the largest financial transaction of your life so far. Do you want to be penny wise and dollar foolish on it?
#25: If you are military or a vet. Run away from supposedly veteran friendly lenders like Veterans United and New Day (and more but those are two big ones) they are horrible on charging rates and fees in excess. Even good places like USAA, Navy Fed, may do a lot of good for vets in other areas but are not the best in mortgages.
#26: As I will get to soon… brokers are better. This is true for insurance too. I see insurance quotes often and I personally did my own shopping where I shopped 10 carriers plus one insurance broker. The broker easily won out.
#27: If you are in a rural area, check out a USDA loan. You can finance up to 100% but keep in mind, you actually might end up better served doing a FHA loan depending on specifics.
#28: Brokers are better. It is simple really. Brokers help consumers by having multiple lenders that they shop. This improves chances for getting approved. It helps give the consumer a great rate and low or no costs which is amplified by accessing these lenders wholesale rates. Brokers are also often able to close faster than other lenders.
#29: You are not locked in to a lender with a pre-approval. Unscrupulous lenders who tend to overcharge will have a lot of nasty little tricks that they do to keep you stuck with them. Fear is one of the big ones backed with lies. That fear will be to tell you that you can not change lenders once you have an offer accepted from a pre-approval or you can lose your earnest money. This is false. Another fear that they will push you will end up not being able to close on time with another lender. Your Loan Estimate is provided to assist you as the consumer to not only better understand the true costs of the loan but to be able to shop your loan around or the best options for you and then be able to compare them as close to apples to apples as possible. Don’t let liars overcharging you win!
Special thank you to Chad Masters for this incredibly insightful post. If you would like reach out to Chad directly send him an email at firstname.lastname@example.org or call him on (708) 400-1799.