Jul 30, 2018
Across the country, mortgage applications are declining.
The Mortgage Banker's Association reports on the change in the number of new applications (both purchases and refinances) each week. Applications declined 0.2% in the week ending 07/20/2018, after decreasing 2.5% the preceding week.
What does that mean?
It means there are a lot of hungry mortgage lenders out there! And many of them turn to gimmicks or "incentives" to get your business.
These are just a few that I've heard recently:
- A pizza party for buyers after the transaction closes. Hey, I love pizza as much as the next guy. But I'm not going to base my borrowing decisions on a pepperoni pizza and a bottle of soda.
- A loan officer who will pay borrowers $250(!!) if they bring in an estimate from another lender and allow this loan officer to provide a competing offer. I'm a big fan of negotiating for the best deal you can. I often tell borrowers to bring me their best competing offer and I'll see if we can beat it (we usually can). But I don't feel like I need to pay them for the privilege.
- Lenders who offer to send every. single. pre-approval. to underwriting. I believe this policy is meant to reassure REALTORS® and borrowers that the loan officer hasn't screwed up and the borrower is truly pre-approved. And certainly, sending every transaction to underwriting would leave a smaller margin for error. But it also seems like a huge waste of time and resources to me. I've worked in the mortgage industry for 17 years. I've literally closed thousands of mortgage loans in my career. I don't need an underwriter to tell me that someone with an 800 credit score, a 40% down payment, and a 20% debt ratio is qualified.
- Lenders who "guarantee" transactions will close in 14 days or they'll give the seller a $500 gift card. I always find it interesting that you only get something of value if the lender screws up. I'd rather use a lender who can get my loan closed on time versus one who will give the seller a bunch of money when they can't deliver.
- No closing costs! This is an oldie but goodie. You've probably heard that interest rates change every day. It's not actually the interest rates that change. It's the cost of getting a particular interest rate.
Let's assume that today you could get a 5.0% interest rate with no points. Tomorrow the same interest rate might cost 0.25% (of your loan amount). Or 1.0%.
It also works in the opposite direction. Instead of paying extra to get a lower rate, you could receive a lender credit for choosing a higher rate. When you see lenders offering "no cost" mortgages, that is how they do it. They charge a higher interest rate and use the credit to pay your closing costs.
- Tacos at an open house. OK, I have to admit. I would totally go to an open house if they were serving tacos.
The moral of the story? Don't base your borrowing decisions on a couple slices of pizza and a gift card! Buying a home is probably one of the largest investments you'll ever make. Choose a lender based on the complete picture of interest rates, closing costs, customer service, professionalism and principle.