How to effectively use the Internet to Shop for a Mortgage?

Myth # 7: Google can find me the right home loan

The modern mortgage shoppers first step is typically to go to google and enter terms such as, “mortgage” or “refinance”. These search terms cost lenders $47 every time a user clicks on them. Below is a sampling of industry-related search terms and their average costs per click.

Screen Shot 2016-10-05 at 4.05.33 PM.png

The conversion ratio for these clicks averages around 5%. That means that it takes a lender at least 20 clicks before they get a paying borrower.

Compared to other industries, this is a really low conversion rate. Even though there are a large number of people looking for a mortgage, lenders tend to struggle to negotiate their way into a deal with that borrower. A key issue is that rates function as a commodity, which means that a large number of Loan Officers are all competing for the same business – and some are going to fall short. With a 5% conversion and $47 per click, it takes $940 dollars for a lender to get to a borrower.

This cost is then passed on to the borrower. By the time you acquire your home loan, the lender has already built that cost into the loan in some way, shape, or form. This has no benefit for any party involved – the borrower ends up paying a higher cost, and the lender ends up spending outlandish amounts in order to try to acquire new borrowers.

Consider this example search for the term home refinance:

screen-shot-2016-10-05-at-4-10-20-pm

After scanning through the results returned, we found the following:

Screen Shot 2016-10-05 at 4.11.08 PM.png

Screen Shot 2016-10-05 at 4.11.28 PM.png

Screen Shot 2016-10-05 at 4.11.36 PM.png

The other issue created by these searches pertains to the level of uncertainty that they add to the process. The results gathered from simple internet searches can return a fairly wide range of potential mortgage rates – in this case ranging from 3.71% to 4.107%. Obviously, the mortgage shopper wants to get the lowest rate possible, but this type of search will not definitely provide an answer related to that. However, using Parlend’s mortgage calculator, a mortgage shopper can quickly access this information without having to go through the online search process.

Myth # 8: Reach 4 lenders and win


Check out our free mortgage shopping tools at https://www.parlend.com

 

Understanding the Role of Loan Officers

Myth # 6: LO’s are on a fixed commission so they can’t rip me off

Contrary to popular mortgage wisdom, LO’s are set on different commission rates. This is the reason why different LO’s working for the same lender quote you different rates for the same loan

Loan Officers (LOs) are a valuable asset in the mortgage industry. Their role is to help you understand mortgage terms, sort through the necessary paperwork, and help you get the best possible deal. However, it is a little-known fact that Los are set on different commission rates. This is the reason that different Los working for the same lender might quote you different rates for the same loan.

However, when sliding scale commissions come into play, this can create issues for your relationship with your LO. Below is an example rate sheet from an LO that shows the commission incentives for different rate offerings. Screen Shot 2016-10-05 at 4.28.56 PM.png

Even though not all lenders function this way, it is important to note that it is not unusual for Los to seek out ways to maximize their profits. Not only does this encourage bad behavior, but it also pushes the LO to sell an FHA loan and impose a higher monthly payment with mortgage insurance. Practices like this will not benefit the borrower when compared to the option of getting a conforming loan without mortgage insurance. Rather, it may only benefit the LO, who is cashing in on a higher commission level.

 

Myth # 7: Google can find me the right loan


Check out our free mortgage shopping tools at https://www.parlend.com