I hear it often, the phone rings, “Hello, I found you on Google. I’m going to buy a house and I’m shopping around and so what is your best interest rate on a new mortgage?” Or I get requests via email to submit my best rate quote from someone I have had zero contact with previously.
Because I am highly visible on the web, people often find me via Google search and Yelp. I have many 5 star reviews with people raving about our service and execution, so I get on average maybe one inquiry per day. However, the internet these days does attract and lend itself to serious rate shoppers and while I can appreciate getting a good deal, the fact is that this group of buyers may innocently be overlooking and sacrificing crucial components of the mortgage process by focusing too much on the rate and fees.
Experienced real estate buyers know that price (rate and fees) is one of many important factors that go into choosing a lender or mortgage broker to work with.
Especially in today’s seller driven the market.
NOTE: This line of reasoning assumes that the mortgage professional is honest, ethical and quoting a fair price. In today’s highly regulated lending environment, the buyer is pretty well protected so in my opinion the fair price part is less of a concern than terrible service, guidance and execution.
Knowing What’s Important
When it comes to getting the offer accepted, the margin for error these days is slim to none (assuming the buyer is not overpaying for the property). With these market conditions it is vital to choose a lender or mortgage broker that strengthens the offer and negotiating position. This happens when they can generate trust quickly with all parties, can demonstrate the ability to perform under quick time-frames and allow the seller to feel comfortable. Coming in strong with a top notch track record and reputation matters big time.
And so…..once a buyer has chosen the lender or broker they feel comfortable with, checking rates with another source is fine, but going above and beyond “keeping them honest” can pose risks.
It can erode trust both ways and create the impression that the buyer thinks they can do better. At best will not inspire your mortgage professional to give you their best work and at worst can alienate them. I can assure you the best mortgage professionals are selective about who they give their time+energy to.
Here are a few important considerations that serious rate shoppers may be unknowingly giving up:
Honest Expertise: Lenders that advertise on certain websites like Bank Rate and Lending Tree, tend to focus on quantity vs. quality and any licensed mortgage professional may be working with dozens of leads per day. So the time and attention a buyer gets in this capacity is akin to a severely watered-down beverage. These companies usually have a sales driven model and less experienced mortgage professionals to guide you. They are not built to take the time to really get to know the client and educate them.
Financial advising and Options: There are many different mortgage products and then subsets of options within a given product. For example, the relationship between down-payment and monthly payment is incredibly important and most mortgage professionals do not spend the time to explore this and find the sweet spot for a client.
Speed and Execution: Aka, the actual loan process. In today’s seller-driven market, this can absolutely make the difference between getting your offer accepted in the first place. And if you get into escrow, a lender that isn’t built for execution can make your life miserable during the process.
Understanding the Whole Process
Of course you know the term, you get what you pay for, and this applies to the mortgage business as much as anywhere. However, it’s more than that. Because mortgages are pretty complicated and the rates can change daily (they are essentially bonds, and good luck explaining how a bond works to a layman when it comes to pricing) the regulation that dictates how rates are advertised and disclosed leaves room for deceptive advertising practices. Meaning a lender can easily advertise a rate with less than full intent to actually deliver that rate. Or it can have so many restrictions (fine print) that it is highly unlikely a prospective buyer will actually get that rate.
I am speaking mostly about home buyers here, but the same concepts apply on a refinance as well.
Residential real estate is still very much a relationship business. Meaning that many deals are still made through parties forming a business relationship, building mutual trust and moving forward together. Agents, sellers, buyers, lenders, all of these parties have to mutually agree on certain terms to move forward with the sale. And usually the top professionals in this business are more relationship oriented than most. Why? Because it’s more enjoyable to do business this way.