Dos and don'ts of mortgage shopping

Flickr photo by Jeff Karpala.

"I don't want an education in mortgages; I just want to know enough to save as much money as possible on my new mortgage. Also, as an African-American, I want to avoid being taken advantage of. Any chance you can distill what I need to know into one article?"

Here are some quick and dirty suggestions for vulnerable borrowers who want to save money but don't want to make the process into a life's work.

Determine Your Status as a Borrower Before You Search For a Loan: You may not qualify, which is a common occurrence in a market that has become very demanding in the wake of the financial crisis. Or you may qualify, but not for the best prices possible. In the first case, you must wait until you have strengthened your application, and in the second case you may elect to wait in order to earn a lower price.

Our housing finance system is weak in providing this service because it is hard to make money at it. You can get a partial answer at the sites of Upfront Mortgage Lenders (UMLs). Enter the requested information about yourself, record the prices you get, then do it again with higher credit scores and larger downpayments. UMLs are listed on my site.

A new site, www.home-account.com, charges a fee for access to a borrower grading system covering not only credit and downpayment but also your debt-to-income ratio and cash reserves. Further, in each case where you fall short, the system will advise you on exactly what you need to do. The system is a work-in-process and I am involved in it as an adviser, director and shareholder.

Don't Respond to Solicitations by Loan Providers: I use the term "loan provider," or LP, to mean the individual mortgage broker or loan officer with whom you deal. The best LPs get repeat business and referrals from past customers and don't need to solicit, but all predators solicit because that is the only way they can get customers. Conclusion: You will likely do better selecting an LP blindly from the Yellow Pages than allowing yourself to be solicited.

Don't Shop Prices With LPs Who Make More If You Pay More: Most LPs charge what they can, putting themselves in a conflict position with the borrower. They seldom discriminate and most are equal-opportunity overchargers, but African-Americans often pay more because LPs can more often get away with charging them more.

To avoid this conflict situation in dealing with a mortgage broker, you must negotiate the broker's fee in advance, with the fee inclusive of any payments to the broker by the lender. Upfront Mortgage Brokers (UMBs) do this as a matter of course, they can be found at www.upfrontmortgagebrokers.org. With the broker's total fee set, the broker cannot increase his compensation by getting you to pay more for the mortgage.

To avoid this conflict situation in dealing with a lender, you must price shop at the lender's Web site rather than with the LP. If you can find your price online, you are not exposed to LP gamesmanship, and you can monitor the price until is locked. ...CONTINUED

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