How To Make Mortgage Lenders Compete

What Is A Cash Offer On A House

When a buyer makes a cash offer on real estate, it means they don’t need to use a mortgage, as most homebuyers do. They have enough in the bank to buy the property, or they’ll have the money after selling their current home or assets such as stocks.

In a hot real estate market, money talks, but not everyone can make a cash offer on a house. If you need to use a mortgage to buy a home, here are strategies for competing against cash buyers.

Get An Underwritten Pre

An underwritten pre-approval involves going through the entire underwriting process however, instead of going through this process after your offer is accepted you move it to the beginning of the process before you make an offer on a home. This will allow you to make a much stronger offer and have a much better chance of getting an offer accepted on a competitive property.

In an underwriting pre-approval, an underwriter will thoroughly review your entire file, with the exception of things such as the appraisal and title policy. Although this takes longer than a standard pre-approval upfront, it will help move the final loan approval process along much faster when you find a home you want to buy.

The only things youll need to take care of after an underwriting pre-approval is a home appraisal, title search, and acquiring insurance. As long as everything goes without a hitch, the deal will go through seamlessly.

Where You Find Information To Compare Mortgage Proposals

The table below shows you where on the Loan Estimate you can find 1) the interest rate, 2) estimated closing costs, and 3) the APR. These are the most important items to review when you review mortgage proposals.

Your interest rate determines your monthly payment and total interest over the life of your mortgage. Closing costs are the fees you pay when your loan closes and can run thousands of dollars for most mortgages. The APR is basically away to look at your combined interest rate and closing costs using one figure. Comparing these figures for multiple proposals helps you select the mortgage and lender that are right for you. Click on the rectangle icons to see where each figure is located on the Loan Estimate.

Interest Rate

• One of the first items on the LE and easy to compare across lenders because it is a single figure

Closing Costs

• Total of all closing costs including lender, appraisal and title fees as well as any taxes, prepaids and escrow payments
• Found at the bottom of page one of the LE

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A Study Finds Unexpected Impact When A Disruptive Player Enters Market

Rising competition in any industry typically results in lower prices for consumers. But in the U.S. home mortgage business, aggressive competition has led to higher not lower loan rates, a new study suggests.

The surprising interest rate finding and other data from the study may help investors, borrowers and regulators gain a better understanding of the mortgage business, which just a decade ago suffered an epic meltdown.

In a working paper, UCLA Andersons Mark J. Garmaise, Universidad de Piuras Gabriel Natividad and Darren J. Aiello, an Anderson Ph.D. student, studied 103 million U.S. home loan applications from 2003 through 2014, a period that includes the housing mania that peaked in 20062007 and the subsequent bust. The data came from 12,557 lenders, including banks, thrifts and credit unions.

Can Mortgage Brokers Compete With Low Online Rates

As mortgage brokers, we should assume our clients and prospects have access to much of the same information we do. But sometimes they dont, and in such cases we can focus on finding the best lender solution, feeling reasonably confident we will earn a full, non-discounted commission.

But more often these days, AAA-clients are well aware of how aggressively your fellow brokers and lender competitors are pricing their mortgages.

Recently on an industry Facebook discussion board, a practising mortgage broker asked of the other brokers: If I asked you, as a client, Why are the rates online different than what you can offer? What would you say?

This sparked a bit of a debate.

Some industry members were quick to deride the online offerings. They suggested the client would experience poor service and be offered a no-frills mortgage. Others simply pooh-poohed the rates as being only for high-ratio purchases.

In my view, this is naive. It reminds me of the time, years ago, when discount brokerages first entered the Canadian securities industry. Many industry vets dismissed them as not real competition. They felt sure their high commission structure would remain in place. But now, a few decades later, the discount brokerage model is the industry standard. In fact, it is not even called discount brokerage anymore.

And at any given time, any major bank or lender can go all-in to win business from you.

There are a few different ways to combat this.

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Unaware Of The Need: An Open Door For Loan Marketers

It is hard convincing most marketers who are unfamiliar with the customer journey to spend money connecting with those who currently have no clue they need a product or service. There is a gigantic opportunity here for those who embrace the customer journey marketing concept and structure their campaigns to hit this audience. As 90% of your competitors wont be doing this it is how you can not compete for mortgage clients.

Know When To Lock In The Rate

Once youve found a new mortgage that meets your needs, consult with your lender to pick the best date to lock in low rates.

Loan processing times vary from 30 days to more than 90 days, but many lenders will lock in the rates for just 30 to 45 days.

Avoid expensive lock extensions. An extension is needed when you dont close the loan on time.

Ask your lender to determine the best day to lock the loan based on a conservative loan processing time frame. Otherwise, you may end up spending more money than you originally planned.

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When Banks Compete You Win

Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania

To illustrate, consider a market in which head-to-head competition by banks does clearly benefit consumers: the market for insured certificates of deposit . Competition works in the CD market because CDs are easy for consumers to shop. They merely look for the highest interest rate for the term and the amount they want to commit. Today, they can find this information at any number of web sites.

CDs are easy to shop for three reasons, none of which apply to the home mortgage market.

The price is one-dimensional. In the CD market, the price is the interest rate, and while banks can differ in how often the rate is compounded, the effect of this on the yield earned by the consumer is negligible. This makes shopping easy, even for the arithmetically challenged.

In contrast, the price of home mortgages is multi-dimensional, consisting of an interest rate plus upfront fees, some expressed as a percent of the loan amount , and some specified as fixed dollar amounts. This complicates the process enormously because it means that the lowest price depends on how long the borrower expects to have the mortgage, which varies from case to case.

This uncertainty as to what constitutes a “best price” makes it difficult for consumers to compare offerings of competing providers.

Boe To Help Smaller Lenders Compete Better In Mortgage Market

LONDON – The Bank of England will help new lenders cut how much capital they have to set aside to cover defaulting mortgages so they can compete better with their bigger rivals, a top BoE official announced on Thursday.

Britain’s government is keen to increase competition in banking, a sector where just four lenders, HSBC, Lloyds, RBS and Barclays make up 77 percent of high street accounts and dominate mortgage lending.

Chancellor George Osborne has given the Bank of England, whose Prudential Regulation Authority regulates lenders, a new, extra remit to boost competition.

BoE Deputy Governor and PRA Chief Executive Andrew Bailey said that one way to fulfil this remit will be to help new banks compete better in offering home loans.

Currently, large banks like HSBC and Barclays can use their own models for calculating how much capital to set aside against mortgages. Smaller lenders must use a method set out by regulators, known as the standard approach.

In-house models are more sensitive to risks than the standard approach and come up with a lower capital requirements.

“The consequence of this is that smaller banks and building societies cannot compete effectively in lower risk asset markets such as prime mortgages because the capital requirements are too far apart and in favour of large banks,” Bailey told a financial services audience.

“This forces them into riskier assets and undermines their position.”

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Feeding The Curiosity For A Solution

The Mortgage marketer prepares a series of educational content and delivers it through print or digitally on demand. There is a solid sales funnel in place which tracks the customers movement through their journey and engagement with the content. The marketer understands the sales cycle for seniors and Reverse Mortgages, and knows that it will be 6 months to perhaps a couple of years before there is a closed sale. The good news is, the marketer has the tools in place to automate follow up with the customer with ready-to-deploy campaigns so her marketing efforts are low maintenance and magnified.

The pro-active mortgage marketers content will come up on the widows radar. She may be exploring multiple solutions such as selling her house, going into a senior living facility, living with family members, or moving family members in to live in her home. The marketing content available genuinely and transparently helps the widow explore these options.

The marketer aligns herself with others in complementary industries such as senior living facility consultants, Certified Aging In Place Specialists , Retirement Planners and other professionals. Jointly they offer seminars, workshops, and online education. They promote this educational content directly to the end users, the senior citizens, and those who influence their financial decisions.

Fees That Cant Be Negotiated

Unfortunately, some mortgage fees are fixed in most cases, there wont be much wiggle room, if any at all, on these costs:

• Appraisal fee: The cost associated with determining a homes value.
• : The cost to pull your credit history.
• Flood determination fee: The cost to determine whether the property is in a flood-prone area.
• Flood monitoring fee: The cost to monitor the propertys location for changes to flood zone designation.
• Tax monitoring fee: The cost to monitor that the property taxes are paid on an ongoing basis.
• Tax status research fee: The cost to determine the homeowners property tax payment status.

Even though you may not be able to negotiate these fees, you should still compare them when looking at quotes from multiple lenders. Fees mandated by local or state laws will be the same among lenders, but others, like appraisal and credit report fees, can vary.

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How Do I Compare

Here are tips for comparing loan offers:

• Apply for a mortgage with multiple lenders. Different mortgage lenders offer different mortgage rates. The more you shop, the more you might be able to save. And consider applying with different types of lenders, such as banks, credit unions and online lenders, so you can compare their offers.

• Shop for loans within a set window of time. The three big credit bureaus encourage you to shop around. You have 14 to 45 days, depending on the scoring model, to apply for as many mortgages as you want with the same effect on your credit scores as applying for one loan.

• Compare closing costs using the Loan Estimates. Each lender is required to provide a Loan Estimate form with details of each loan’s terms and fees. The Loan Estimate is designed to simplify the task of comparing mortgage offers.

Know What Mortgage Terms You Want And Need

Familiarize yourself with the loan options available to you. When its time to negotiate mortgage rates, youll want to make sure that the loan terms fit within your budget and long-term plans. For example, variable interest rates are typically lower than fixed interest rates initially, but could be less affordable later.

Its crucial to know upfront in your mortgage negotiation strategy what type of loan and terms youre looking for, and how they may affect the cost of the loan. A mortgage calculator can help you estimate your monthly payment and loan costs.

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Lendingtree And Lending Club

Despite the very similar names, LendingTree and Lending Club are two completely separate entities. Lending Club is a peer-to-peer online lending platform where private investors connect with borrowers and does not offer mortgages. LendingTree is essentially an online referral service for multiple loan products including mortgages.

The Mortgage Customer Journey Begins

A recent article by the The New York Times reports that Americans are among the most stressed people in the world. Our own experiences demonstrate that when we face stress, we look for a solution to rid us of it. Your potential customer may be facing financial stress. The stress may be as the result of potentially losing a business opportunity, the need to put a young one through college or purchase a bigger home. During their search for relief from the stress of these elements, is when the customer realizes they have a problem and they need to find a solution.

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Here’s A Way To Get Competing Quotes From Several Lenders

A consumer in search of a mortgage has several options. They can visit a local bank or credit union, go to a direct mortgage lender such as Quicken Loans, or try to obtain multiple loan offers simultaneously by using a site like LendingTree.

For individuals looking to shop around for their home loan in relatively little time, the LendingTree route is one you may want to consider. The company doesn’t offer mortgages itself but rather acts as a lead generator for a vast array of lenders in its network. When creditworthy customers submit their request for a loan, they are likely to obtain offers from a handful of those participating lenders within minutes.

As long as you understand how to navigate the processwhich will keep lenders from calling and emailing you to secure your businessit’s a quick way to see what rates you qualify for so you can potentially proceed with a formal loan application.

Things To Know About Negotiating Mortgage Fees

While the interest rate is a significant factor in the cost of your loan, its not the only one that affects the loan price: Youll also need to cover additional borrowing costs. During your negotiations with lenders and third-party services, plan on comparing and negotiating mortgage fees as well.

Closing costs typically range from 2% to 6% of the loan amount. On a $300,000 home, that amounts to $6,000 to $18,000, so negotiating mortgage fees in addition to negotiating a better mortgage rate can provide significant savings.

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What Is Mortgage Insurance

Private mortgage insurance, also known as PMI, protects the lender in the event that you default on your mortgage. Typically, if you make a down payment of less than 20% of your homes purchase price, you will be required to pay PMI. How much youll pay for this insurance will vary, depending on factors that include the size of your down payment and your credit score.

Dont Limit Yourself To Your Current Lender

Even if you love your current lender, you should still shop around for the best rate, adds Moon.

In many cases, your current bank may not be the best option for a new home purchase or refinance because they dont specialize in the type of loan you need. Or, their rates may be less competitive.

Remember that your existing lender is profiting off of you, so dont be afraid to ask for quotes from other lenders, Moon adds.

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Be Prepared To Reduce Your Commission

Even if you do specialize in a niche, those rate-shopping clients will find you from time to time. You need to know how you will manage such prospects.

Some brokers are instantly dismissive of rate shoppers. They feel its a waste of their time and that the client will have no loyalty. They say the approval you get will always be at risk right up till the funding date.

While this is definitely true of some prospects, it is not true for all. Learn to weed out the ones who you feel are going to waste your time, but do your best to win the business from the rest.

Being attracted to the lowest rate does not make prospects or clients bad people. We all do this in other aspects of our liveslike buying or financing a car, a major appliance or furniture. At least initially, the buying process is based on budget and price.

If anything, we should understand the shopper mindset. And we know that we do not always make our final selection based on the lowest pricethe topic of price starts the conversation and opens up other discussions about what really matters to the consumer.

On a daily basis, most mortgage brokers need to know what are the best rates available to them for each borrowing situation. And they need to know who the lenders are and what their buy-down policies are.

Do keep track of the rate update emails from your lenders, and use any and all tools that your brokerage offers.

• Private lender mortgages