Rate Isn’t the Only Factor to Consider When Getting Loan

Most home buyers shop for loans almost solely on the basis of price, and that could be a costly mistake, according to a recent study on how buyers select lenders.

Buyers who opt for the lowest rates and fees--paying little or no regard to service--are put through an ordeal of such epic proportions that they could make a movie about the experience, the study found.

Nearly every real estate agent interviewed for the study by consultant Weston Edwards had clients who “had a mortgage-from-hell experience” because they insisted on going with the low-priced lender.

Obviously, not all lenders with the best rates are incompetent. But for the most part, they aren’t major players either. And the agents Edwards spoke with said that invariably, low-priced lenders are so overwhelmed with business that they just can’t keep up.

Almost without exception, the agents say that processing is sloppy and takes forever, documents are lost and service--what little there is--is a nightmare.

And because the lowest-priced lender is not normally one with whom the agents work on a regular basis, it is difficult (if not impossible) for the agents to solve problems when they arise.

Worse, settlement is often delayed by two weeks or more, according to Edwards. “And when it finally comes time for the loan to close, the lender says that there has been a mistake and the rate and / or fees will have to be higher.”

For this reason, when asked by their clients for advice, the study found that nine out of 10 agents recommend a lender based on service first and cost second. Only 10% recommend a lender based on price alone.

Consumers, on the other hand, tend to take the opposite tack. Only one in 10 consider the service they are likely to receive. The other 90% look at price alone.

Since applying for a mortgage is not something that most of us do on a regular basis, we can be forgiven our trespasses. But real estate agents are in the trenches, day in and day out, so perhaps they know something the rest of us don’t.

Of course, some agents don’t necessarily care what you pay for a loan as long as the deal closes and they receive their commission. But most have their clients’ best interests at heart.

For that reason, many agents will try to persuade their buyers to shift to a quality lender when there isn’t much of a difference in rates. Five years ago, agents told Edwards, they could get a client to switch when the difference in rates was as much as a quarter percent. Now, however, if the better lender’s rate is more than an eighth of a percent higher, most buyers won’t budge.

Whether to opt for a higher rate in exchange for better service is a decision that everyone will have to make based on personal circumstances. There are no rules or words of wisdom to impart about that. You have to decide what you can afford and go from there.

But if you do your homework, perhaps you can find a lender that offers the best rates and the best service. And you can start by talking with your agent. He or she deals with various lenders on a regular basis and knows who performs as promised and who doesn’t.

Beyond that, you can ask friends, relatives and co-workers about their experiences. Most people are more than willing to recite their tales, both good and bad.

Specifically, you’ll want to know whether their loans were closed on time and at the same rate and terms as originally quoted, whether documents were lost and had to be replaced and whether there were any last-minute hitches that had them scrambling.

You also can check on potential lenders by calling your local Better Business Bureau and the office in your state charged with regulating real estate and mortgage transactions.

These sources should be able to tell you the number of complaints lodged against a lender, their nature and whether they were resolved satisfactorily.

Another way to avoid a major headache is to get approved by a lender before you start looking for a house, or at least before you find one that you like.

“If you wait until after you buy,” advises Stephen Brobeck of the Consumer Federation of America, “the clock starts ticking, and you’re not as concerned with getting the best deal as you are with getting any deal.”

According to Edwards’ research, less than half of all home buyers visit with a lender before talking to a real estate agent. Those who do see a lender first do so only briefly and usually only to discuss rates. And less than one in 10 of those who meet with a lender early in the home-buying process are savvy enough to get pre-approved for a mortgage. One in two get pre-qualified, but there is a big difference between the two.

Getting pre-qualified simply means that the lender, after giving you a quick once-over, has determined that you can afford to borrow so much money.

Pre-approval, on the other hand, means that, as long as nothing changes financially between now and when you decide on a house, you’ve been cleared for a mortgage.

Pre-approvals are usually dependent on the value of the property you decide to buy. But as long as the house appraises within your borrowing limit--and as long as you still earn the same amount of money and haven’t run up your credit card debt--you are good to go.

Also look for a lender that will keep the loan rather than sell it to another in the secondary mortgage market. There is no guarantee that your loan won’t be sold, but nowadays, more and more lenders are retaining the servicing of their loans to maintain borrower continuity.

Many lenders are also starting to make a commitment in advance to refinance their loans on reasonable terms and in a timely manner should rates fall below a certain level in the future.

The idea here is to prevent “portfolio runoff,” or the loss of loans to the competition during a period of low interest rates. It’s purely an act of self-preservation; after all, many lenders don’t make any money until after loans are on their books for a while. But it also makes it easier for borrowers to take advantage of a market downturn.

Distributed by United Feature Syndicate.

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Average Mortgage Rates and Indexes

Weekly Survey of 90 Southland Lenders as of Nov. 6, 1997

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Latest One Week Six Months week previous previous Rates for loans under $214,600 30-year fixed 7.04%/2.03pt 6.98%/1.94pt 7.80%/1.95pt 30-year ARM start rate 5.63%/1.64pt 5.61%/1.57pt 5.94%/1.40pt 15-year fixed 6.81%/1.79pt 6.71%/1.79pt 7.47%/1.85pt Rates for loans over $214,600 30-year fixed 7.34%/1.92pt 7.27%/1.97pt 7.91%/1.99pt 30-year ARM start rate 5.77%/1.52pt 5.77%/1.39pt 5.96%/1.66pt 15-year fixed 7.10%/1.82pt 7.05%/1.82pt 7.69%/1.85pt FHA or VA mortgage average points 7.00%/2.34pt 7.00%/1.74pt 8.00%/1.56pt CALVET 30-year ARM start rate 8.00% 8.00% 8.00% 6-month LIBOR 5.875% 5.813% 6.000% 1-year treasury bill 5.440% 5.350% 5.900% 6-month treasury bill 5.130% 5.070% 5.320% 6-month certificate of deposit 5.720% 5.710% 5.890% Prime rate 8.500% 8.500% 8.500% 11th District cost of funds 4.941 4.904 4.780 For the month of Sept. ’97 Aug. ’97 March ’97

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Compiled by Mortgage News Co., Morro Bay, CA