Actually Using the Lowest Rate Lender
How the industry works
Remember me mentioning (see Flat Fee Mortgage Planning) those in my industry who say:
"All of the money is coming from the same source... for about the same price."
They are just plain wrong.
The fact of the matter is that there is a wide variance between what price lenders are selling their “paper” for (in other words, what rates they’re offering). One of the best lenders that comes to mind for conforming loans happens to be one of the worse for jumbo loans.
In some cases, this will be true, but in others, it will not be. Why? Simply put, just as different loan originators charge different mark ups, different lenders charge differently for their loan.
For example, as of writing this today for a $250,000 loan on a standard Conforming 30 Year Fixed Rate program, the price differential between the best wholesale lender’s price is 1.05 points (or $2,625), so if your broker chose to use that lender (yes, it happens every day), his fee would end up being $1,630-$2250! Or if the broker went with America’s #1 Home Loan Lender – Countrywide Home Loans (I’m talking in terms of loans funded, not public sentiment), today they’re exactly 0.5 points more expensive ($1,250) which would still be $255-$880 more expensive than my $3,495 flat fee!
By the way, the spread differential is even larger on the FHA program (1.57 points or $3,925), as well as the Conforming 40 Year Fixed (1.735 points or $4,337), and yet still even greater on a Conforming 7/1 ARM (2.169 points or $5,422!)
You think that’s bad? Those whose misfortune (literally!) it is to entrust their jumbo mortgage (greater than $729,500 in high cost markets such as most of the Bay Area) to someone who’s either become too comfortable with their “go to” lender or just simply doesn’t shop much in their “brokering” efforts could be the victim of a MUCH higher cost! The difference on a 5/1 ARM as of writing this today is 5.846 points (or $42,646) on just a $729,751 loan!
How most loan officers do business
The reality is that most mortgage “brokers” do NOT even really do much “brokering”! The majority get really comfortable with 2-3 wholesale lenders and send 95% of their loans to them without even bothering to look at what the market if offering. It serves them well as it streamlines their operational steps to closing a loan faster – but it does not serve their borrowers well with respect to the rate and fees they end up with!
There are some brokers who do their best to stay current with what the market has to offer, usually by glance at various rate sheets faxed or emailed to them by a variety of lenders. While better than the above type of broker, this method is still insufficient to really know who’s offering the best rates in the wholesale market because it’s too cumbersome and time consuming to survey all of the lenders, much less just the lender’s their authorized to represent!
While there are a lot of lazy mortgage brokers and plenty who aren’t equipped well enough to find the best cheapest source of money to fund your home loan, retail bank loan officers are in an even worse situation! Sure, dealing with your bank may be easier (at least initially) to deal with than finding an excellent mortgage broker (unless you’re referred to one or some how stumbled upon my services!), and admittedly, it may feel more comfortable working with either your banking institution or some other large bank that has branded well, but unless that bank happens to be selling the cheapest money on the day you lock in your rate, chances are very good that there is another lender – perhaps several others! – that is a better source for your loan on that day! But the bank’s loan officer won’t tell you that – he wouldn’t even know. This is why over the last two decades brokers have taken away the market share from the banks and now fund over 2 out of every 3 loans in America.
How I work
It is very tempting to only work with 2-3 lenders for consistency of dealing with the same people to get my loans through the system, reduction of operational steps, and comfort of relational familiarity. And at one time, I was that broker who tried to “keep on top of it” all by search through 7-8 rate sheets to find my clients the “best” rates (or at least fair and near the best). Fortunately, now I have a resource that makes this part of my job much easier and also ensures that my clients will get the best rate available at the time of locking their loan!
My company pays good money (about $6,000 per year!) for a third party surveyer to compile interest rates among all of the major wholesale lenders and several smaller lenders as well (it’s actually the most complete survey I’ve seen as I’ve subscribed personally to other services). I’m including an image capture of one portion of the sheets that our delivered to us daily. Notice where the two top lenders in America are in relation to several other lenders offering cheaper money above them (also remember that the lenders at the top of the list change regularly as different lenders “buy the market” at different times… for those mortgage professionals reading this ...yeah, this is eye opening, isn’t it).
So not only do my clients receive a great, reasonable flat fee as our mark up over the wholesale rates – but they also get the best of the wholesale rates that are offered!
As good as this is, it gets even better when you factor in how much money you can save by locking in your rate at the right time! As good as this is, it gets even better when you factor in how much money you can save by locking in your rate at the right time! Please read The High Costs of a Poorly Timed Rate Lock to find out how incorrect market timing can cost you thousands of dollars.
As good as this is, it gets even better when you factor in how much money you can save by locking in your rate at the right time!
Please read The High Costs of a Poorly Timed Rate Lock to find out how incorrect market timing can cost you thousands of dollars.