We all know how to shop for a digital camera or new DVD player: Decide what you want, then shop around and compare prices. The internet has made it very easy to do that. The natural tendency is to try to shop mortgages the same way.
However, before you do that, keep in mind that professional services are different from commodity goods. What you see is not always what you get. When you buy that digital camera online, you see the charge hit your credit card almost immediately, and you receive the item within a few days. In the case of mortgages, it’s usually 30-60 days between the time you choose your lender and the time you sign papers and close on your loan. A lot can change in 60 days, and the bad guys know it. You may get to the closing table and be faced with the option to either sign something that’s not what you expected, or walk away and not get the house.
Another thing to understand is that the “best rate” is a moving target. It’s easy to quote a low rate. 1%….there I just did it. (that was a joke). But the fact is, there’s no one company that has the best rate all the time. Mortgage rates are based on the Mortgage-Backed Securities (MBS) market, which trades like the stock market. Rates change daily, sometimes multiple times within a single day. Staying on top of it is a full-time job. In fact, I subscribe to a service to monitor interest rate movements and how different lenders respond to them. It’s pretty interesting to watch how on any given day, some lenders respond to the market by lowering rates, while others are raising rates based on the same news. Like I said, it’s a moving target.
Think about the business model of the mortgage company that gets you in the door by quoting a low rate in the Sunday paper or on the internet. The rate quote has nothing to do with you. In fact, it’s only purpose is to make the phone ring. We all know that to make it into the Sunday paper, your ad has to be in by Wednesday. With rates changing daily, sometimes multiple times in a single day, there’s not much chance of getting an accurate rate in the paper.
So let’s call a spade a spade. Rate quoting is a LEAD GENERATION business model. The perfect example is LendingTree. They take advantage of their multi-million dollar marketing campaigns to convince consumers that mortgages are a commodity. And then they pick on the weak marketers in the mortgage business and sell them the leads. Most of the mortgage companies who are buying leads fall prey to this. And why is that? It’s because they truly have nothing of value to offer you as a consumer. If they didn’t buy leads, they’d be out of business.
Remember, for most people, the mortgage is the single largest financial transaction of your life. That’s why it’s dangerous to choose your mortgage lender based on who’s quoting the lowest rate.
So what’s the right way to do it? Work with a professional who has access to the best rates, and who has the tools and expertise to help you optimize your credit score. You want to go in early in the process…. for a face-to-face meeting….with all parties to the transaction…. and bring all your documentation. And above all, make sure you work with someone who has the ability to be objective, who has your best interest in mind.