Mortgages can seem complicated and intimidating, particularly in a world when we can “one click order” online. How can you find out what you don’t know…but really should? How can you increase your mortgage shopping confidence?
When consumers shop for mostly anything, they evaluate the item or service they’re considering based on a predetermined set of criteria. Some considerations are easy, while others are more complicated. Mortgages tend to fall into the latter category. This is typically due to the intimidation factor and the perceived complexity of the product.
Mortgage loans come with an inherent, internal language the everyday consumer rarely encounters. If you wandered around a mortgage company, you’d hear phrases such as, “Where’s that VOD?” Not surprisingly, many of these phrases would be meaningless to you.
On the other hand, when someone decides they want to go out for a coffee, the choices are a bit more familiar sounding, and the decision most likely boils down to a matter of location and price. It’s pretty simple. While loan officers might wish the mortgage process were as easy as ordering a cup of coffee, it’s typically not.
Due to the varying factors of a mortgage transaction, borrowers should compare lenders based upon quoted interest rates and responsiveness, quality and trust. Consumers should approach mortgage education by explaining their needs and what they are looking to accomplish.
In this manner, they can find out more about the lender’s mortgage process and how loans are issued.
Finding a good mortgage loan officer
There is plenty of material online about how to shop around for the best deal on a mortgage. Certainly you want the best rate at the lowest cost, but you also need to consider the reputation of the companies you’re interviewing. But perhaps the process needs to be reversed.
When you call a loan officer and ask about a rate quote, the loan officer knows there’s competition. He then provides the best available offering without considering all the details. The loan officer doesn’t have any reason to thoroughly evaluate your situation, so he falls into an all-too-familiar trap. He provides a quote to win your attention potentially resulting in a bait-and-switch.
Here’s the problem with that: The quote alone doesn’t help lift the veil off the mortgage process or account for long term needs. It won’t ensure consumers make the right loan choice. It won’t ensure that you come away from the closing with a clear understanding of what’s just happened and why. Yikes!
How can you, as a consumer, know what to ask to gain mortgage shopping confidence?
The surest path to pure mortgage nirvana is by communicating openly with the loan officers to facilitate learning early. This will be the best way to increase your mortgage shopping confidence.
Instead of considering only the interest rates, you should include a description as to what you are looking for. Here’s an example: “Here’s my situation. I want low monthly payments, but I also want to save on long-term interest. I’m retiring in about 15 years and I want to be mortgage-free.”
With this information, the loan officers know to quote you a rate on a program that matches your goals. Surprisingly, that doesn’t necessarily mean a 15-year fixed rate loan.
A loan officer could suggest a 20-year loan, and set up a payment schedule that allows you to prepay just a little bit each month. This would give you the security of a lower payment if ever needed. The extra payment would be applied directly toward the loan balance and would not go to interest.
Did you even know a 20-year loan was an option? Probably not, because most information you read is about either 30- or 15-year fixed rate loans. Instead of asking for a 15-year fixed rate and the associated fees, try explaining your current situation and what you want to accomplish.
Experienced loan officers know to include this information automatically, but unfortunately, most get into a rate-and-fee game, leaving borrowers confused.
Another mortgage shopping example
“I need a quote for a duplex I’m thinking of buying.”
The loan officer answers and even sends a cost estimate showing how much down payment you will need, along with a list of anticipated closing costs. You get your quote, hang up and dial another mortgage company. Doesn’t that sound like fun? NOT!
Instead, how about saying: “I’m going to buy a duplex and live in one of the units. The current rent for each unit is $1,500 per month. I want the rental income to cover my mortgage, property taxes and insurance plus a little extra cash each month.”
Now, that’s a plan. Your loan officer will explain your options and what your monthly payments will be. He’ll also help structure a prepayment plan to retire the mortgage sooner, saving you long-term interest.
The loan officer in the second scenario will explain why each option is offered and how it meets your requirements. You may not have known how much your payments would be or whether the rental income could cover your mortgage payments.
You also may not have known your interest rate would be better because you plan to live in the property rather than renting it. By the end of the conversation, you’ll know how mortgages work and how they can be crafted around your exact situation.
Mortgage Shopping Confidence
By communicating your goals along with your rate request you’ll WIN at this process we refer to as the mortgage maze. You’ll also end up comfortable with the loan program you’ve selected. Now THAT is a WIN because you’ll increase your mortgage shopping confidence!