2 Mistakes I Made Getting My Mortgage That Cost Me More Than $10,000
I’ll start with a disclosure, which is that I work for a company, RateGravity, whose mission is to remedy many of the things I did wrong when getting my mortgage. My intent is less to describe what our company does, and more to describe my story so others can avoid it. If we’re the right answer for you then great, but only give us a shot if we help solve a problem for you.
Truth is that when it comes to financial products I consider myself more educated than most. I would not have pegged myself as the guy who would make textbook mistakes when it came to getting a mortgage. I’ve worked in business throughout my career, have an MBA, and have plenty of friends to lean on who are similarly educated. I really have no excuse for having made these mistakes aside from transparent information being hard to come by in an industry that I’ve found out has no incentive to give good advice.
My wife and I bought our current house in 2012. This was the second time we had purchased a house, so it was actually the second time I made the set of mistakes I describe below. Our purchase process was typical in many ways: We looked for months to find the right place with the help of a real estate agent who was guiding us along the way.
We found our lender as a referral from a friend and colleague I trusted. My colleague had a good experience with the loan officer we worked with. I had an initial conversation with that loan officer, gave him the information he asked for, he answered a couple of my questions, and then he sent me a pre-approval letter to use with any offers I made. When we eventually had an offer accepted on a home, I went back to that guy, sent him more paperwork, and eventually we got a commitment letter and closed on our loan.
For years I didn’t even realize I had made a mistake. The loan officer I worked with and the minimal research I did left me with the impression that I got a good deal. Both of the mistakes I made I only found out about 5 years later when I started working for RateGravity where we’re focused on solving these problems for consumers.
I only got firm quotes from 1 lender
It’s hard to remember exactly what stopped me from looking elsewhere. The loan officer I spoke to on the phone sounded intelligent and experienced, so I didn’t doubt his competence. Since I figured my loan would be resold, I thought there was an efficient market that would determine the rate for my loan. I didn’t think that the rate I’d be offered would differ substantially between lenders.
In reality the CFPB states rates can differ by as much as 0.5% between lenders. More thoroughly assessing my options across lenders could have saved me more than $10,000 over the life of my loan.
In return for the 2 hours I spent on the phone with my loan officer I’ll end up paying over $14,000
I didn’t realize it until I learned more about the industry, but loan officers on average take 1% of the value of your loan in the form of a commission. The top performers in the industry end up making $1.5-$2m of income per year. On a $400,000 mortgage a loan officer will end up pocketing $4,000, but what does that means for the consumer? It’s actually worse than having to pay the $4,000 out of pocket yourself, because the bank marks up your interest by as much as 0.5% to pay the commission themselves.
On that same $400,000 mortgage, at today’s rates, the consumer pays $2,000 in excess interest per year so the loan officer could make his commission for 2 hours of work. The excess interest you pay declines over time as the interest portion of the mortgage payment recedes, but amounts to ten of thousands of dollars over the life of the loan.
What I could have done differently
The first thing I should have done is fairly simple. I should have shopped. As soon as I had an offer accepted I should have gone bank to bank to find out who had the lowest rates for the loan product I wanted. Since I had invested a couple hours with my loan officer, I naively figured I might need to spend a similar amount of time on the phone with someone else. Truth is, if I had the institutional knowledge I have now, I could have shopped around in a matter of hours.
Unfortunately there isn’t a whole lot I could have done at the time to negotiate with my loan officer. It is built into the rate he was able to offer me. The 1% commission is the industry standard rate that varies very little between lenders, and if you ask your loan officer, he/she won’t give you a straight answer. The industry is stuck with rates that are overinflated as a result select individuals making outsized salaries.
What RateGravity is doing about it
With the context on my situation, it isn’t too hard to describe what we’re doing for consumers. Overall these 2 benefits have amounted to on average 0.4% of savings for consumers we’ve matched with our certified lenders.
- We help you understand your options — We work with a network of local lenders to frame multiple options and help create clarity by finding the one that’s right for your situation.
- We have unique relationships with lenders that bypass the highly paid salesperson — Our lenders pay us a fee of .25% after your loan closes. This is a fraction of the 1% commission they pay to their Loan Officer. The savings from the difference in fees gets returned back to you in the form of a lower interest rate.
If you are in the house hunting process, or think you may be a good candidate for a refinance, it’s completely free to create a profile, get your rates, and use RateGravity’s tools to best understand your options. Of course, there is no obligation to use us.
Some advice a loan officer never would have given me: If we can’t beat your price you should get your loan from someone else.