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The Great Gimmick

 

Everyone’s got an angle, right?  Everywhere you look in the mortgage industry, there’s someone advertising a “free” vacation, a “free” gift card to Home Depot, a “free” cake mixer, or any possible “free” thing the human imagination can think of.  You’ll hear home builders offer a “free” $5,000.00 credit towards closing costs when you use their lender.  The ONLY problem with all this “free” stuff is… it’s never free.

 

California Home Loan Tip:  When searching for a new low interest rate California Home Loan obtain quotes for 4-5 mortgage companies.  Out of those pick two companies you would like to work with and complete a loan application.  Once that is completed, obtain the disclosures from each Mortgage Consultant, discuss locking options and then pick which mortgage company you are moving forward with.

 

One of the greatest gimmicks I’ve encountered is the home builder’s in-house lender offering cash back to use towards closing costs.  This is one of the biggest scams out there.  Before I tell you why it’s the biggest scam out there, let me first remind you of one of life’s all-important principles:  nothing is ever free.  Now that we have that out of the way, let’s get back to the gimmick at hand.  I’ve done loans for people who were purchasing brand new homes from well-established home builders.  Builders usually offer some sort of incentive, like $5,000.00 dollars towards closing costs, if you use their lender.  I’ve even heard one builder say they would contribute $10,000.00 towards closing costs if the buyer used their in-house lender.  How is this possible?  By way of two very simple ploys.  One typical way is to charge a much higher interest rate to the borrower to compensate for the lost revenue, and the second method is to just charge more in total fees than they normally would.  Sometimes you’ll see a combination of both. 

California Home Loan Tip:  Closing costs are an important aspect when looking for your next California Home Loan.  Obtaining a low interest rate is essential but the cost to obtain that rate changes from company to company.  Most people think a no point loan will always have a lower total cost then a loan with 1 point.  It should, but sometimes it does not.  Reason is that some loan officers play with words and call their loans a no point loan but add a ton of junk fees to the final terms.  Best thing to do is compare the total cost of each loan to get an idea of what the true cost of each loan is. 

 

Now a major problem when buying a home is that you frequently don’t see the final numbers until you sit down to sign loan documents.  A phenomenon that happens all-too-often in this business is that when you go to sign loan documents things “just happen to have changed” at the last moment. This trick happens a lot with mortgage companies offering these phony gimmicks.  And what is a person to do?  The deal is closing in a few days, they have no time to find a new lender, and they don’t want to lose their deposit, so they’re stuck with the loan.

 

The bottom line is all good mortgage brokers have access to similar rates and terms.  On any given day one might have a better rate than the next guy, but all in all, we should all be within a .25% - .50% of each other.   The builder’s in-house lending company is usually a mortgage broker who has been contracted to do the lending for the project.  Sometimes these builders use direct lenders like Countrywide or Wells Fargo.  So what do you think you should do when someone who is trying to sell you a mortgage offers you $10,000.00  towards closing costs?  Take it with a grain of salt, realizing that at the end of the day, that $10,000.00 is coming right out of your pocket.  Same thing goes if they offer you a “free” cake mixer.