Sometimes the mortgage industry is complex. Complex enough that unless you’re in it everyday, you’ll likely face times of confusion and misunderstanding.
Heck, we are in it everyday, hours and hours a week, and there are STILL things that come up that require a lot of research and thought to get right.
It’s no wonder that you have questions and concerns.
If we’re being blunt, it’s likely that when you start a mortgage, you are not 100% confident about much of what’s taking place with your mortgage.
That leaves you throwing up your hands, looking the other way, and signing the papers.
And let me tell you, big mortgage banks count on that exact reaction from you. They know that if they can get you to sign the papers, you’ll have moved on in a few short days.
Over the many years, we’ve had countless clients reach out to us asking our help to review a loan proposal they’d received from another lender. Many of these were just plain bad deals, in need of sending right back to the kitchen.
Some of our clients we saved from a bad deal just in the nick of time. Unfortunately, others were left holding the proverbial bag.
My intention today is to help you not be an unwitting and uninformed target of corporate mortgage lenders by giving you what we’ve seen over many years:
My top three ways that borrowers can get nailed by mortgage banks without even knowing it:
1. Charge big fees and discount points on a refinance, but cover it by “rolling it into the loan.”
With equity at an all-time high, lenders know that loan amounts have plenty of room to rise. That makes it easy to charge a bundle up front, but then raise your loan balance to cover it. They know that if you had to come to closing with all that cash, you’d push back, HARD.
But since the loan amount can absorb those extra costs, they will jack your loan amount higher so you come to closing with no cash out of pocket.
You’re feeling great because you got a great rate and you’re not having to come up with any money to close. But they’re feeling even better because they may have made thousands, right up front. Granted, in exchange for charging up front, you can often get a below market rate.
But here’s the dirty little secret: you paid UP FRONT for that lower rate and it takes time (sometimes MANY YEARS) for a lower payment to recover what was paid up front. BANKS know that statically you’ll be out of that mortgage in a short time, so if they can get it up front, it makes sense.
IF you are going to pay more up front for a mortgage that’s fine, but make sure you know the cost/benefit and that you’re happy with it.
Take my brother, as a recent example. He works crazy hard to support his family as a music teacher in a state across the country. Keeping up with his schedule seems nearly impossible. He teaches large classes during the day, instructs private students at night, and plays weekend gigs.
He gave me a call a few weeks ago, because he received an incredible deal on a refinance from a large mortgage lender. Relaying the numbers to me over the phone, even I initially thought it was something he should pull the trigger on.
Before hanging up, I asked him to text me a copy of the loan proposal so I could look over it, and boy is he glad I did.
As I perused the proposal, something didn’t look right. Closer inspection revealed that the proposal was for a good rate (in my estimation). But his closing costs exceeded TWELVE THOUSAND DOLLARS for a loan of only 270,000. His closing costs should have been 2 grand, but the bank tucked an extra 10k into the loan amount.
What did the numbers tell him?
Paying the extra 10k only saved him $84/mo. Only after 119 months, which is almost 10 years, he would finally recover that 10k. Since he was confident that he’d be getting a new loan within 10 years, it wasn’t worth it. He elected for a loan that had a bit higher rate but a super low closing cost package.
What makes that whole scenario really frustrating is that large banks know that statistically people are unlikely to keep their mortgage for longer than a few short years. Seriously, how old is your current mortgage?
2. A limited array of programs or program knowledge, leaving you stuck with the wrong loan.
Often lenders specialize in certain programs, or have a limited array of programs to offer. How is a consumer supposed to keep track of all the various loan programs out there? It’s nearly impossible.
We’ll see clients that have spoken with another lender and come to us with a loan proposal.
Upon further review, it’s apparent that the program proposal wasn’t optimal for that person. Which would cost them thousands.
A little while back we had a client, a long-time military veteran, who was purchasing a home through a builder. This builder had a preferred lender, so our client did a quick pre-qualification with the builder’s lender. He was given a proposal of a mortgage that is designed to help military veterans.
Makes a ton of sense at first glance, right?
But after going through the clients profile, we discovered a key piece of the puzzle that had been overlooked. The client wanted to put down a large down payment.
That one piece of information changed the equation entirely. We found him a loan program that rewarded him for that down payment.
By switching to that program, he eliminated a huge up-front charge that the veteran’s loan would’ve nailed him for, and he walked away saving literally thousands of dollars.
BTW, that veteran’s loan IS a great loan for many of our veterans, but in our client’s case it was not the best.
3. Overly-conservative calculations that sell you short
This is a common issue we’re seeing all over the place right now. Either call-center employees aren’t sure how to calculate income or their boss, the lenders, are taking a conservative stance.
The problem:
A customer gets pre-qualified to buy a home, but because the income was calculated conservatively at best—or completely wrong at worst—they think they can afford less of a home than they actually can, sometimes severely limiting market choices.
Another story:
A client of ours was recently in the market to purchase a home. She had questions about a pre-approval she’d gotten from another lender.
After reviewing her profile, we found that she was eligible to buy a home over 50K MORE than what her pre-approval stated. To her delight, her home buying options opened up significantly.
Bottom line, you may be able to qualify for more than you’re being told.
Ready to get a real Sweet Mortgage Deal? Contact us today!
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