What are some of the worst-case scenarios when buying your first home?

For every endeavor, there are merits and demerits.

For the purpose of this subject, I will only tackle the worst-case scenario as regards financing your home loan. We will leave the “Meth lab in the basement” theory to others.

Generally, the borrower is on the receiving end of a system that is designed to favor the lender. So when they shop for a suitable mortgage, they end up leaving thousands of dollars on the table.

In this section, we are going to explore a few mistakes that borrowers make when they are shopping for mortgage rates:

1. Allowing Comparison sites to compare home loan rates

Many of the comparison sites online are lead generation platforms. They are only interested in obtaining your personal info. They want your personal info, because, as lead gen sites, your personal info is their product to the lenders. So they are essentially selling the personal info you entered their site to the lenders who pay them a fee for each person’s personal info. They have no interest in your financial goals.

2. Using a loan officer recommended by your friend or Cousin.

According to CFPB, 75% of borrowers only shop with one lender. There are many reasons why borrowers choose to use one loan officer, but whatever the reason may be, it does not justify limiting your options to get the best mortgage rates. Choosing and sticking to one loan officer based on proximity and other non-financial factors is not a good idea, as it has been proven that the average borrower leaves close to 25 thousand dollars on the table during the shopping process.

3. The trap of one lender

One Lender, One rate right?

Usually, one lender could have thousands of Loan Officers (LO).  Many borrowers think they are using different lenders when they change their loan officers, only to find out that they have just subscribed to another package of their lender. In a bit set up their commission plan, each LO would offer different pricing.

This is why you need an extensive and reliable set of shopping tools. At Parlend, we offer free mortgage shopping tools that will help you in finding a fair rate and cost in real time, while keeping you anonymous.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

Does it hurt my credit if I shop around for a mortgage?

We can’t stress this enough, but you have to be really informed about the mortgage process, in order not to ruin your credit scores. When you start your mortgage rate shopping, a typical dialogue with your loan officer will often look like this:

You: I like to find out your rate

You: I like to find out the best rate for my mortgage
LO: Well that depends on what your profile looks like…. how is your credit?
You: My credit is good I think I have a ???
LO: Well I have to do a credit pull to know exactly what your score is, otherwise I can’t quote you

The response from you here has to be “Give me your best-case scenario with zero points.” The Loan officer will tell you their rate without having to pull your credit.

It is important that you do not allow anyone to pull your credit; it is unnecessary. Early on in the conversation, loan officers do this; they would have pulled higher scores, therefore, getting an upper hand by being able to offer a better rate. Of course, not all LO’s do this, but you, as a borrower, will have no recourse and finding that out the hard way may be costly.

Tell them your credit score (which I am sure you know) and demand their rate. PERIOD. To do this effectively, you need a mortgage comparison shopping tool like Parlend’s Mortgage Rate Calculator that offers free mortgage shopping tools that will help you in finding a fair rate and cost in real time, while keeping you anonymous.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

Get a 15 year home loan and save on interest or get a 30 year loan and save for retirement?

Well if you watch a lot of TV, then you are probably seeing Quicken and other lenders force borrowers into a 15 year home loan, and that is because they are trying to make some easy money on your back.

15 Year fixed has a few side issues that most people don’t know and the lenders won’t mention.

First off, it is hard for a borrower to qualify for the 15-year fixed due to the high payment, so it pushes the debt ratio higher (which is commonly an application killer). In addition, when you sign up for a 15-Year fixed, you are in what is called a “payment shock.” Payment shock is a situation where your payment almost doubles, and this may lead to some lifestyle changes to accommodate the unexpected shift.

Aside from all that, it is important that you focus on your ability to do something else with the money during the term; this is more valuable. For example, remodeling will increase the value of your home and could be a better return over the long run.

As a matter of fact, if you take the additional payment that you have to shell out for a 15-year loan and applied it to an index fund, you would likely be a multi-millionaire by the time you retire.

For your mortgage comparison shopping, check out Parlend’s Mortgage Comparison Shopping tool, that will help you in finding a fair rate and cost in real time, while keeping you anonymous.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

How do I get the best mortgage rate?

Finding the best mortgage rate can be a bit daunting if you are just starting out. However, we have simplified it into a few simple steps that anyone can follow. Using the acronym ALP, you can figure out how to get the best mortgage rate.

Anonymous

You have to be able to shop without using any personal information. This is crucial for many reasons. Most importantly, it will keep you safe from lead generating sites who are intent on selling your personal information. In addition, it puts you in an advantageous position with your credit intact when negotiating the mortgage rate.

Large Footprint

When lenders compete, you win, right? This makes a great tagline, but that is all it is—a tagline.

We will explain below as to why that is the case:

We shopped a loan with multiple loan officers from the same lender/bank and the results speak for themselves. Same loan, Same lender, different loan officers. We got back different rates, different closing costs.

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So how can you tell if an LO you contacted, is offering you the best pricing? The answer is simple. You CANNOT unless you reached as many Loan officers as possible while staying anonymous and then determine whether the rate you got is the best or not. There are over 400 thousand loan officers out there, and their job is to sell the loans on commission so they can make as much money as possible. This means if you contact one, they would want you to close the loan with them so they will get the business, and hence the commission. As a result, Lenders do not compete, Loan Officers do.

Par

If you are like many car buyers, you use Kelly’s Blue Book to find the wholesale price of a car. Similarly, you need to find out your fair pricing in mortgages, and that’s called the Par rate. However, you need a calculator that tells you the cost of the Par rate. Mortgages are set up like whack-a-mole game—as mortgage rate goes up, the closing cost comes down and vice versa. As a home buyer, it is very important that you know about this relationship. This can help you avoid making many costly mistakes and obtain a low mortgage rate.

Parlend’s Mortgage Rate Calculator will help you understand the seesaw relationship between rate and closing cost while keeping you anonymous.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

What are the biggest myths about home loans?

Generally speaking, you are exposed to all sorts of scams and myths when you start looking for a mortgage. This creates a lot of confusion and uncertainty to a first time home buyer, which explains why they leave thousands of dollars on the table. What then, should you stop searching and looking for good mortgage rates? The answer to that is a resounding NO!

But, you should be careful when shopping for your mortgage rate. This is because the system is set up to make the lenders win, not the borrowers.

Here are some myths regarding Home Loan shopping:

  1. One Lender, One Rate

    Nothing can be further from the truth. One lender could have thousands of Loan Officers (LO) and each LO could offer different pricing due to their commission structure with the lender. Hence, you cannot use the mortgage rate quotes offered by one loan officer from a single lender/bank to determine what the best rate is even from that lender/bank. To effectively comparison shop for your mortgage rate you need a shopping tool dedicated for that purpose.

  2. Comparison sites do comparison shopping.

    Majority of the comparison sites do not offer genuine mortgage comparison. Instead, they are set up to generate leads using your personal information. They are lead generation websites, and they make money by selling your personal info that you enter into the forms in their sites. They have no interest in finding you the best rate or in your financial wellbeing.

  3. Shopping around can’t save me much

    According to CFPB 75% of borrowers only shop with one lender. That’s amazing since the average borrower leaves close to $25,000 dollars on the table during the shopping process. Given the right tools, they would have done their mortgage comparison shopping right.

  4. Banks, online lenders, small shops have better rates or process. 

    Over the years, it has been proven that nobody has better rates than anyone else. Rates start out at the same place for every lender but by the time they are padded for the LO’s commission, they look different to the borrowers. Loans do not get easier or faster because they are processed with a mobile or web app; all those claims are done purely for marketing

This is why you need Parlend’s Mortgage Rate Calculator and other tools that will help you find your fair rate and cost in realtime while keeping you anonymous.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

7 signs you should run screaming from a mortgage broker

When dealing with a broker, here are seven signs you should watch out for:

  1. “You need to sign this or your rate will end up going higher”: Intimidation is one of the persuasion techniques of brokers. They love the fact that mortgage rates are volatile and use this fear in getting you to be on board with their high mortgage rate offerings.
  2. You need to send your documents back asap.”: While it is essential that your documents need to be sent as soon as possible, it is even more important that you carry out an extensive home loan shopping. A knee-jerk response to every one of your broker’s request may make you leave thousands of dollars on the table. You need tools like parlend.com to carry out a mortgage rate comparison.
  3. “Take this 30 year fixed when an ARM makes more sense”: Yes, that’s right.  Sometimes, ARM makes more sense if you only plan to live in the house for 5 to 7 years. Despite popular belief, brokers make more money selling the 30-year fixed over the ARM. Hence, it is important that you watch out for this one.
  4. “You really need to get another appraisal done”: When the 1st appraisal comes in short, you aren’t the only one upset, the broker also loses out on potential commissions. However, it is selfish and reckless if the broker recommends you to pay for a second appraisal.
  5. “The good ole bait and switch”: If there are discrepancies between the rate you were told on the phone and what the initial paperwork shows, it is advisable that you get out while you can. This broker is not the best one for you.
  6. “Forget the rate lets talk about the payment”: If they are selling you a payment, they are just a car salesman with a new hat. This trick is old, and they often low-ball taxes and insurance in order to trick you with the low monthly payment.
  7. “I was fishing last week didn’t so and so help you?”: One of the signs of identifying a terrible broker early in the application process is if they do not return calls or emails. You need a broker that is super-responsive during your home loan process regardless of the outcome.

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

 

7 ways a mortgage lender can take advantage of you

If you are new to the whole mortgage lending process, you may end up leaving thousands of dollars on the table, even if you are seeking the simplest of the plethora of available home loan terms. In this FAQ, I will show you 7 ways that a lender can take advantage of you.

  1. “Don’t worry your rate is locked”: A verbal agreement cannot be trusted. Although this is illegal in practice, it is done more times than you may think. Hence, it is advisable that you get the loan agreement in official writing. There is an official form for this.
  2. “Oh your rate is going to be very low”: This is the old classic that can be avoided if you get the loan estimate from the loan officer and it has the correct numbers you agreed on.
  3. “Your appraisal came in low, so yes numbers changed”This is possible, but it is advisable that you have a second expert look at it. This second expert maybe your local bank’s mortgage broker. They are less likely to cross you.
  4. “Your appraisal cost will be refunded at the funding”: A statement like this from your lender will result in you paying for the appraisal cost eventually.
  5. “Your credit scores went down that’s why the rate and cost increased”: While it is true that a dip in your credit scores may affect the loan’s rate, it is advisable that you verify this on your own. This is because brokers will often use this statement to trick simple borrowers to accept higher rates.
  6. “We have the lowest rate in the country”: You can’t take the word of your lender for it if they told you that they have the lowest rate. You need your own tools to carry out an extensive home loan shopping. Parlend.com offers free mortgage shopping tools that will help you in finding a fair rate and cost in real time while keeping you anonymous.
  7. “Yes we can Yes we can Yes we can”: Loan officers are more of salesmen than doctors. They will start with a lot of yes’s until they give you the below-belt blow, “No, I am sorry we cannot.”.

 


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

 

I’m buying a new home. Should I get a 5/1 ARM or a 30-year fixed mortgage?

There are many ways to look at this. However, you are the only person who can give a satisfactory answer to this question. This depends on your 5-year outlook. If you do not plan on staying in the house for more than 5 years, then a 5/1 ARM is advisable.

Despite all the negative news in the media concerning ARM, it fits the purpose of a short-term ownership.

However, if you plan on staying in the house for a long time, it is advisable that you stick with the 30-year fixed.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

Is there any risk in accepting a lower mortgage rate from a less well-known bank or lender?

There is absolutely no difference between the middlemen (Loan officers). They all sell into the secondary loan market; and, as long as they are licensed, they are good to go. Although, they are exposed to a big risk by lending you such a large amount of money over such a long period.

You, as the borrower, have no risk if they are willing to give you the money. Title companies do all the checks and due diligence necessary to ensure that the money is legit.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora

When applying for a home loan, do banks care how long you have been with your current employer?

This depends if you are getting a Conforming or FHA loan. Conforming does require 2 years of employment and there is no exception.

However, FHA requires only 2 consecutive pay stubs if you have started a new job or a profession. All of the other compensating factors like Debt ratio, FICO etc must be met regardless.

Another out happens when the borrower has been finishing post-graduate school i.e. MD, MBA etc. In this case, they will allow a letter of employment along with first months 2 pay stubs to qualify you for conforming loans.

Length of employment can be a very sensitive issue to the underwriting, do not take it lightly if you are employed less than 2 years.


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

This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora