Why Shopping Around For a Mortgage Lender By Rate Can Be Dangerous

I am being rate shopped recently much more often than before I think it’s because rates have risen so far so fast and consumers can’t believe how high rates are. So, they call around hoping someone has a rate in the 3’s still. Is selecting a mortgage lender by who has the lowest rate a bad idea?

First, most likely whoever has the lowest rate is either not telling the truth or hiding the fact on how many discount points the borrower has to pay to get that rate. Second, most likely the lender with the lowest rate will be an on-line lender. But, Mr and Miss Borrower do have your LO’s cell phone number? Can you talk with them on the weekends and evenings when you are looking at homes? Is their Pre-Approval Letter 3 pages long full of legalese? Will they call the listing agent on your behalf?

If you can’t get under contract to buy a home the lowest rate does NOT MATTER.

Third, I believe we have some of the best appraisers working for us as they want to talk with the listing agent and find out how many showings the home received, how many offers, what other offering prices were to help them bring in the value as high as possible. In fact, since last May I have only had 1 purchase appraisal come in low and over half of my purchase appraisals have come in ABOVE contract price.

I remember talking last spring with a top agent who had 6 listings under contract at the time. He told me our appraiser was the only one who asked for his data and the other 5 appraisers didn’t care because the contracts contained appraisal gaps. That to me is reprehensible.

Then, remember my story from a couple of months ago on the Castle Rock home that appraised for over $150k under sales price? In this case the appraiser was lazy and put in no extra effort and I discovered why. In an appraisal the appraiser has to disclose how much they were paid and this appraiser was only paid $500. Appraisers don’t work hard for $500. Our appraisers probably would have charged at least $850 for this appraisal and I am sure the appraised value would have come in much higher. So, this borrower saved at least $350 in appraisal fees, but it cost them over $150k in down payment.

And make sure to ask your client’s lender if they will use a Desktop Appraisal? If they do your buyer needs to demand a normal full appraisal. If the lender will still use the Desktop Appraisal tell your clients they need to switch lenders immediately. I am sure the big banks will love using desktop appraisals to save them $100 to $200 on every appraisal. You need to ask your client’s lender the above question BEFORE you write a contract for your buyers.

Finally, let me end with this word—TRELORA. You get what you pay for.