Shopping for a Mortgage 101

I have spent 30 years shopping for mortgages for people who think, quite correctly, that I can do a better job of it than they can.  But every once in a while I get someone in my office who is literally unable to comprehend that my 30 years of expertise can be of any benefit to them.  They invariably have a yellow pad of paper and they want to know "the facts."

Almost invariably, these folks are the analytical types, engineers, accountants, and so forth. These are people who are used to looking at the bottom of a page and coming up with a number. Important concepts like honesty, expertise, and trustworthiness seem irrelevant.

In some cases, they may have done enough shopping so that they say they know what they want, say a 30-year fixed rate loan at 5 percent with zero points. That choice is invariably the wrong one but they don't know that. 

Their thinking is that if they nail down the rate and fee, then the only other variable is lender costs, what we in the industry call garbage fees. Sounds logical, doesn't it. Then you just have to call a bunch of lenders and ask them what their fees are. The problem is that it is NEVER this simple. 

This is a complex business, so complex that I wrote a 256 page book and over 400 articles, something like 500,000 words of advice. My book  How to Save Thousands of Dollars on Your Home Mortgage is packed with secrets ways I have of saving people money.  If shopping were as simple as my shopper thinks it is, I could have published a book with only one-page!

The ways I know about how to save money are NEVER even on the radar screen of the analytical guy. These clever ways of saving money are a result of my having done 5,000 loans. My expertise manifests itself as I teach people things that are new to them.   Many, many clients have said so often, "I never looked at it that way." Then I know I have done my job.

Here's the sad thing. There is perhaps $200 difference in lender fees between one lender and another. $200 is inconsequential when you figure he'll spend $200,000 in interest.  Among the lenders I do business with there might be one than charges $200 more than anyone else. BUT we might use him because the points on his loan are 1/8th of a point less. On a $400,000 loan, that's a $500 saving for my client. That more than offsets the $200 extra he paid in lender fees.

The other critical variable in a volatile market is which day to choose to lock in.  I can tell you that a loose-cannon client has about a 20 percent chance of locking in on the day with the lowest rate.  He probably will leave $1,000 on the table by locking on the wrong day.

Now this shopper isn't alone. In fact, most shoppers are naïve. That is why most lenders staff their 800 number call centers with twenty-something people making little more than minimum wage.  They may even quote low fees to get him to apply and then make it up and more in some other way he can't see.

Finally, the reason I will not play the game on his level is that I know that people like this never stop shopping. If I’m $50 low, next week he'll find someone else that will be $50 lower than me and he's gone.

Here's how you should shop. Find an expert and go to his office and say, "You know a lot more than I do about this. How can you help me save money?" 

If your circumstances are identical to our shopper, I can guarantee you that I could show you how to save $5,000 over the deal he ultimately gets. You are a client and I help clients. The other guy is just a prospect. I'm not about to tell him my secrets. It won't earn his loyalty. He would just take my secret down the road to some other lender so I'm not going to let him pick my brains.

So, my way of establishing the "value proposition" is that the client has to attribute value what I as the mortgage broker bring to the table. He has to WANT my help.  A good shopper wants find the best and most affordable approach for his particular situation – and that's not a simple, cut-and-dry process.

In summation, find someone who knows these secrets and get their help. You might start out by buying a book and reading about the home buying process. Of course I recommend my own highly-praised book. I have heard from countless people, "After reading your book, we think we know more than our loan officer."

Sad but true.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.