3 Reasons Millennials Don't Shop for Mortgages
It never fails. Millennial buys a home, thinks all is good in the world and only then realizes they just got taken to the cleaners on their mortgage. They are then stuck in a loan with an unnecessarily high payment every month for years to come. How did they end up in that situation? Why didn't they take time to explore mortgage options? Here are the top three reasons millennials don't shop for mortgages.
1. "I was scared by my real estate agent"
Some millennials may never admit it, but they are subject to human emotions just like the rest of us. When it comes to a big purchase, such as a home, it is human nature to want to avoid risk. Some agents take advantage of this and inject questionable statements like this:
"Our in-house lender is always the best."
"Her service is great and she'll be at closing, nobody else ever does that."
"Those online lenders, stay away! They'll never close on time!"
"Our in-house lender will shop rates for you, you don't need to."
Facts: Discouraging a home buyer from mortgage shopping is 100% unethical - and could even be illegal! There are many incredible loan originators out there and many attend closings regularly. A single lender or broker can't shop mortgage rates for you (learn why). To understand why a real estate agent may steer a borrower to a specific lender, let's follow the money!
The money trail
A real estate agent makes money when a house is sold or bought via commissions. The rate and loan program obtained by the homebuyer is irrelevant to the real estate agent's income. Their primary goal is to get the transaction done. Until that moment, they haven't earned a penny.
Additionally, many real estate agents have co-marketing agreements with specific mortgage lenders, brokers or loan originators. If these mortgage professionals don't see an ROI on their investment of marketing dollars, the real estate agent stands to lose at least part of their marketing presence. Therefore, the real estate agent wants to "feed" the mortgage professional to continue the financially beneficial co-marketing arrangement.
With these in mind, is it any wonder that an agent will aggressively push you to a specific lender or mortgage broker?
Not all agents are the same
While many tech disrupters offering flat fees or "no-commissions" on real estate sales solves some of the problems, one major money problem remains. Despite the removal of commissions, real estate agents may still be receiving funds from a mortgage broker or lender in the form of a co-marketing agreement or "MSA". This means they will still push homebuyers (especially inexperienced buyers such as millennials) to a specific lender, robbing them of the opportunity to shop for their mortgage.
How can this problem be solved? You simply need to find an ethical real estate agent who isn't "hooked" on the money coming from one specific lender. Before you legally engage with any real estate agent, simply ask this question: "Do you receive money from any specific mortgage broker or lender?"
If the answer is "yes", walk away and find someone else who will be just as interested in helping you save money on your mortgage as they are in finding you the house of your dreams.
2. "I used an app"
Every lender claims to have the tech to close your loan faster than you can say "mortgage transaction." Can they really? And if they can, who is actually the winner of this perceived huge investment in technology? Do lenders make these massive investments purely for the consumer experience?
No, they sure don't.
Fact: The shorter your loan is in processing, the lower the likelihood you'll shop around or be solicited by other lenders and brokers.
Avoiding competition is a good thing for mortgage lenders and brokers, but not consumers. When millennials decide to not consider alternatives, voluntarily or involuntarily, the lender or broker wins. The government has been fighting to help consumers shop for years, instituting more robust disclosure time periods and new documents - but the tech industry has quickly outpaced any government intervention.
Tech helps you shop too
Fortunately, the digitization of mortgages has made mortgage shopping easier provided you can avoid the common pitfalls.
Pitfall 1: Sharing your name, email, and phone number with shopping sites that send it to multiple lenders. This will get you bombarded with calls and you'll wish you never uttered the words mortgage.
Pitfall 2: Shopping over the course of several days. Rates change every day, so an apples-to-apples comparison is always essential.
Pitfall 3: Shopping while uninformed. We tend to consider the use of a mortgage concierge a good thing but hey, we may be biased :-)
Solutions to mortgage shopping
So, how can this problem be solved? Fair warning, millennials - the answer may require that you have a conversation with an actual human at some point who isn't your parent or friend who doesn't know a lick about mortgages.
Solution 1: Our particular solution is to use MortgageCS' concierge program which is free and provides education and insights from day 1 of your shopping through your loan closing.
Solution 2: Other options are becoming a mortgage expert by holding numerous conversations with many banks, lenders, and brokers all while resisting the urge to have your credit pulled numerous times and getting bombarded with follow-up calls and emails. Grow thicker skin and don't be afraid to say "no" and you'll be all set here.
3. "I am subject to advertising"
It may be hard to admit, but marketing messages can impact everyone - even tech-enabled millennials. From TV spots to billboards and creative event sponsoring, mortgage companies are investing more and more each year to maintain scale and keep their operations growing. After all, they have an investor base or shareholders to keep happy.
Remember this: A mortgage is a single transaction, creating a predetermined amount of income. It follows that a company with lower costs and all else equal could deliver a better mortgage rate and fee structure. While company size and other factors can sometimes influence this, you should read this first: Do mortgage brokers act in their customers best interest?
Now that you know the three reasons millennials don't shop for mortgages - you can ensure you don't fall victim to the same influences!
Share this to help your friends - they can use their savings to take you to a nice dinner one day!