Many potential mortgage borrowers spend time on mortgage websites in preparation for shopping offline. The check these sites to see if they will qualify, to decide what kind of mortgage best meets their needs, and whether they want to buy down the rate by paying points or pay a higher rate to get a cash rebate.
Potential borrowers also visit the Web for another reason: To get mortgage prices they can use in shopping offline. Many borrowers think that the way to select a loan officer or mortgage broker (I will refer to them as "LOs" throughout this column) is to find a price online and ask prospective LOs if they can beat it.
In fact, this is a useless exercise because LOs can’t be held to price quotes; almost all LOs will respond with some version of "No problem, I can beat that," whether they can or not. If the price you quote is ridiculously low, the honest LOs will pass, leaving you to select among the liars.
I hasten to add that a borrower can use price information taken from the Web to reduce or eliminate the information advantage the LO otherwise has.
The problem is that most borrowers don’t know the kind of information they need for the purpose, where to get it, or how to use it. This article is directed to these questions.
The borrower’s challenge
The most difficult challenge facing a borrower shopping offline is that the borrower has to select the LO before knowing the price of the mortgage. The LO may quote a price, but it means nothing. As a result, the LO has multiple opportunities to overcharge. Borrowers who don’t understand this are sitting ducks.
Preventing overcharges by "dual-apping"
Broadly, there are two ways to prevent overcharges. One way is to withhold full commitment by applying covertly to two or more LOs, then playing one off against the other when both have cleared you to lock.
The downside of this, in addition to it being sneaky and time-consuming, is that you probably will have to pay for multiple appraisals, and the LOs will feel deceived and angry. Some will walk away rather than be manipulated, leaving you with only one (angry) LO, or perhaps none. I do not recommend this approach.
Preventing overcharges by finding your price online
The much better alternative is to price your loan online while keeping the LO informed as to what you are doing. Documenting a competitive price as a standard keeps the LO honest, without any deception on your part.
However, for this to work, your online price has to stand up to the critical queries of your LO. He will claim that your price is not fully adjusted for all the features of your transaction, or that it doesn’t cover all lender charges, or that it does not reflect recent market changes.
The last point is almost sure to be raised when you are prepared (and have been cleared) to lock the price.
There are hundreds of websites that offer mortgage prices, but very few that provide the capacity to drill down to the one set of prices applicable to a specific transaction, and even fewer that cover all lender charges and are always up to date. Among the sites: mortgagemarvel.com and zillow.com, and my own website: mtgprofessor.com.
Dealing with offline risk
If you have obtained a credible online price and keep it current, you are positioned as well as possible to negotiate a favorable deal with your LO. But the process is not free of risk.
The risk arises with LOs who can’t beat the price you bring to them, which is highly competitive, but prefer to resort to one or more stratagems to retain your business rather than withdraw gracefully. Salesmanship is part of an LO’s stock in trade.
On a purchase transaction, the LO can agree to beat your price but stretch out the paperwork past your point of no return, where your closing date is too close to begin again with another lender. You will then end up with a higher price.
The best way to deal with this danger is to develop an agreed-upon timeline with the LO that will leave you with enough time to begin again elsewhere if the LO doesn’t deliver.
On a refinance, the LO may attempt to cast doubt on the validity of your "Internet price," which has not been locked, and offer to put your mind at rest by locking you immediately at a higher price. It would be a mistake to underestimate an LO’s powers of persuasion.
Particularly unscrupulous LOs may offer to lock you at a lower price but don’t. If the market price drops, they lock then and collect their commission. If the market price doesn’t decline, they find something wrong with your application to squelch the deal. This won’t work if you demand to see the lock confirmation statement.
Needless to say, none of these risks arise if you select a lender offering loans on the website you used to find your price.