Mortgage Interest Rate Shopping: Is Rate Matching A Scam?
https://www.youtube.com/watch?v=LP9F917ddHk&t=357s
Written by Jennifer Beeston
Hello there,
I want to share a valuable story with you that highlights the importance of making informed decisions when it comes to mortgage rate shopping. This story involves one of my sister's clients, and it serves as a cautionary tale for anyone looking to secure a mortgage.
First and foremost, it's crucial to understand that not all lenders are created equal. Just like my sister specializes in a unique income type called RSU (Restricted Stock Unit) income, there are specialists for various aspects of lending. If your financial situation is anything less than vanilla, you want to work with a lender who specializes in your specific circumstances. This specialization ensures that you're getting the best advice and guidance tailored to your unique needs.
Rate shopping is a common practice, and it's a good thing to do – to an extent. However, it's essential to approach rate shopping with intelligence rather than fixating solely on the interest rate. Some buyers become so obsessed with securing the lowest possible rate that they overlook other critical aspects of the mortgage process.
Now, let's dive into the story. My sister's client was in the process of purchasing a home, and everything was on track. The underwriting was complete, the appraisal was done, and the closing date was set for just 10 days away. However, a call from a call center (yes, you heard that right) changed everything. This call center claimed they could beat the rate my sister had locked for the client. The client asked my sister if she could match their rate, but due to market fluctuations, she couldn't.
Despite the minimal rate difference, the client decided to switch to this call center lender. They believed they were getting a better deal. This decision had far-reaching consequences. Here's what happened:
Panicking, the client reached out to my sister 15 days later. They needed a lifeline because their loan had been denied. Fortunately, my sister was able to step in and save the day. She could have helped them all along, but the client's earlier decision to switch lenders meant that the rate my sister had locked was no longer available. The market had moved, and rates were significantly higher.
Here's the bottom line: Rate is important, but it's not the only factor to consider. When you're in contract to purchase a home and the closing date is approaching, you're essentially locked in. Attempting to switch lenders at this stage can lead to complications, higher rates, and extra fees.
Your prime opportunity to shop for rates is when you've just entered into a contract. During those initial days, you have the flexibility to explore your options. However, it's equally important to assess the lender's competence and specialization. If you have a unique financial situation, make sure your lender understands and specializes in it.
Don't underestimate the power of reviews. In today's digital age, reviews can provide insight into a lender's competence and reliability. If an individual lender lacks reviews or testimonials, it's a red flag. Reviews can be a reliable indicator of a lender's track record.
In closing, rate shopping is a smart move, but it should be done intelligently. Always consider the bigger picture, including the lender's specialization, and be cautious about switching lenders once you're in contract. Your goal is to secure not only a good rate but also a smooth and successful mortgage process.
So, we're going to do a little story time today. I'm going to talk to you about something that happened with one of my sister's clients. As some of you guys know, my sister is a mortgage lender as well. She's actually up in the Washington area, and she specializes in a type of income called RSU (Restricted Stock Unit) income. It is a very specialized type of lending. Most people don't even know what it is. You guys probably don't know what it is right now, but here's the bottom line: she does something that most people don't understand. Important: it's important that you guys know if you're getting a loan and you have a sort of income or situation that's not vanilla, you want to be working with a specialist in that type of income. Okay, very important.
Now, story time. This is a rate shopping gone wrong story. Okay, and look, I do think you guys should rate shop, but I think you guys need to be smart about it. And I see a lot of people who understand that having a good lender and a great rate is a good thing, but then I see other people who are just blinded by rate. They don't look at anything else. All they look at is rate, and it can often end in their detriment because there is more to this puzzle than you know, 0.05 on the rate. Okay, so what happened?
Okay, so my sister had this client. They were in contract, meaning that they were in a contract to purchase a house. Okay, and it was supposed to close in 10 days. My sister had everything dialed in, you know, they were just waiting for the closing. Underwriting's done, appraisal's done, everything's done, perfect. Okay, she gets called from the client. "Hey, I was just talking to XYZ call center." Seriously, guys, it was a call center. And they said they can beat your rate by XYZ. "Can you match their rate?" Well, my sister couldn't. She had already locked, and that's what you guys need to understand. Rates change every single day, and when we lock you, we have less ability to do anything. So, in this situation, the market had dropped a smidge on a day, and my sister was like, 'I can't,' you know, she couldn't do it.
So, the woman goes, "Okay, I'm switching over to them." My sister goes, "Are you sure you want to do that?" It was like, guys, it was like a nominal difference, like laughable difference, and she's like, 'Yes, I want to switch.' And my sister goes, 'Of course,' you know, because we want to respect you guys. We respect you guys. We'll always do what you want, you know? We'll say things like, 'You're 10 days from closing; this is it. Like, this could go wrong. Like, you want to be careful,' but ultimately it's your decision. You are the boss, right?
So, when you tell us you're going to another lender, we cancel your loan as per your direction, and we cancel your lock. Okay, which means whatever we had you locked at, it's bye-bye-bye, it disappeared. So, she's going to this other lender. Cool, what could be the problem? I mean, my sister got it approved, right? Can't anyone-- no, no, I mean the short answer is no.
So, my sister gets this panic call 15 days later. Okay, now remember they were supposed to close in 10 days. It's the same client, and the client's like, 'Oh my God, they just denied our loan.' And my sister goes, "Okay, tell me what happened." So, they tell her what happened. Well, here's what had happened.
So, the lender, this call center lender, had put the client-- this was a jumbo loan with an investor that wouldn't count RSU income, yeah. Now, my sister knows this investor doesn't count that income, but the call center guy didn't. So, the call center guy who pried this client away from her, right, put him in a loan they don't even qualify for because he didn't know his guidelines, yeah. So, they waste all this time; they have to order a new appraisal; they pay for two appraisals, right? And then they deny them.
Okay, so she's coming back to my sister going, 'Hey, can you still do it?' My sister was like, 'Of course I can, but I canceled your lock because you had canceled with us. We have to cancel your lock,' and she goes, 'Okay, well what's the rates now?' Dude, that is not a question you want to ask in 2022. If two weeks pass, if 24 hours pass, rates could be a quarter, half a percent higher. In this case, rates were over half a percent higher than where she originally locked, and there was a point charge to it. And it wasn't like my sister being vindictive or anything else; that's how much the market had moved, okay?
And so, this poor client had left to try to chase this lower rate, which really was never real because it was with an investor that wouldn't do that type of loan. How's the client supposed to know that, right? There's no way they would. So, you know, they end up back with Sarah. Sarah takes care of it, you know, they close it, no problem. But here's the thing that sucked for the client: client ends up with a higher rate, client ends up with higher fees, and the seller, the seller's like, 'Dude, you switch lenders in the middle of this transaction, and now you want more time? Like, I'm gonna charge you a per diem.' So, by the time it came back to my sister, they were already charging the borrower a couple hundred dollars a day to extend the loan.
Okay, so what's the moral of the story? Pretty simple. You need to make sure that the lender you're working with is competent, competent. And if you guys have anything non-vanilla about your loan, you need to make sure the lender specializes in that, okay? There's a reason I don't do construction loans. I do not specialize in them. If I try to do a construction loan for you, I will fail you and disappoint you because it is not my specialty. In this situation, this lender didn't know the guidelines, so they lured the client over with a lower rate that wasn't even real. You know, it's so upsetting. I like when we were talking about this, my sister was very upset for the client. I was very upset for the client. How do you think that lender felt? Who knows? I mean, look, they cost them thousands and thousands and thousands. I mean, actually, if I did the math on it, I think it would probably be over $50,000 over 10 years that it cost the client just by that whole switch in the middle, you know, the higher interest rate, the per diem, you know, the interest rate my sister originally had her locked with was a lot lower, but the market's moving that fast.
So, the point beyond, like guys, yeah, rate is important. I think you should rate shop. I think you should always make sure you're not getting taken advantage of because there are some lenders that will take advantage of you. But I also think, number one, if you're in contract, okay, and you're 10 days from closing, you're done shopping. You're done shopping. And like from my perspective, it's always tough too because I'll get someone, and they'll be like, 'Hey, like I'm supposed to close in a week, but I just wanted to check my rate,' and they tell me what their rate is, and I'm like, 'Oh, you guys really don't want to do this,' because sometimes their rate is really high, but it doesn't matter; they're supposed to close in seven days; they have no choice. So, once you are in contract and you are locked, just accept it and stay. The market is so volatile right now that assuming that a rate you leave on Monday may be there on Tuesday is a bad assumption to make. The only time it can make sense changing lenders during contract is if you're moving to a lender that also specializes, and you're within the first three days.
So, like, we see that with VA a lot; there's a specific lender that won't give out what their fees or rates are until you're in contract unless you twist their arms, seriously; that's like one of your guys's one of the VA biggest lenders. So, we will have people switch in that first week once they go, 'Oh my God, what are they trying to charge me?' But beyond that, you know, beyond those first few days, you do not want to switch unless you're switching to another specialist.
And I know it's hard for you guys to know that, so in many cases, it's so hard to even get your offer accepted right now. If you are getting close to closing and your rate's already locked, close, don't torture yourself over an eighth of a percent or 0.005%. If you're in a position and you just get into contract, and it's day one, shop, that's your time to shop. But when you're shopping for rate, you also need to shop for skill level and competency because here's the thing: being a lender is a sales gig. So, it's not hard for people to sound like they're super competent and amazing, but reviews will always tell you the truth. Okay, if that individual lender has no reviews about them individually, be afraid. Seriously, be afraid. I wouldn't risk my house on it; I wouldn't risk my refinance on it. If the individual lender has no reviews, be afraid. If that client had followed that little piece of advice, none of this would have happened. Okay?
So, I know this was a little wild video, but you know, Sarah was upset about it; I was upset about it. I mean, the client has their house, thank God, but it was just so unnecessary and just not positive. So, we want to make sure when you guys are rate shopping, you're doing it right. Thanks for watching. As always, questions, comments, thoughts, feelings, throw them in. I'm happy to help. I'm licensed in 48 states to do loans. I only do loans that I know how to do, and if I don't, I will usually refer you to someone or I'll say, 'Hey, I don't specialize in that, but this person does.' Thanks for watching, guys.