It is easy to be confused when shopping for a mortgage these days, especially a refinance. Most lenders just throw up as much stuff on the wall as they can to see what sticks. They would take 1000 loan applications in the hopes of closing on 500 of them. But where does that leave the 500 people that had their loans rejected? Is it fair to have them pay $400-$500 in application fees, and to wait 30-90 days, when it could have been determined in advance the loan was not able to be approved.
What I would like to see
What I would like to see is lenders doing a little bit of due diligence on the front end before the loan application, and simply speaking to the potential client more and making sure that the loan has a very good possibility of getting approved.
Give me an example
For example, I heard from a potential mortgage client who wants to refinance, and they have spoken to Bank of America as well as to DiTech Funding. BofA of course is a very respectable and large institution. DiTech is the king of late-night cable television ads, and I personally consider it an absolute embarrassment to lose a client to them. It is analogous to someone who is very sick in need of surgery calling 1-800-CUT-U-OPEN. Why you would leave something so important to someone who solely exists not because of excellence but because of late-night cable television ads is beyond me. But I digress…
This potential client wanted to refinance a mortgage balance of almost $900,000. The credit score for this person was 708. They thought their home was worth 1.3 million. With a little bit of homework I was able to find out that no bank would do a loan of this size without a minimum credit score of at least 720, and most banks even wanted a credit score of 740.
Further, by talking to a few local appraisers, I found out that the property would be lucky to appraise for $1 million. Since they owed $900,000, that equals a 90% loan to value. And no bank is going to make a loan that large with only a 10% equity stake and a 90% loan to value. This loan has a 0% chance of getting approved.
Late night TV ads
However, there is one large reputable bank willing to take this loan application, and there is the king of late-night cable television ads that is also willing to take it. My potential client told me that both of them stated that they can get this loan through as long as they apply today! And I’m sure the next statement is that they get a free $19 hair curler if they apply by midnight.
As usual, there can never be enough questions or due diligence before you start a mortgage application with a bank or mortgage broker. Whatever mortgage professional you choose, make sure you have done as much homework as possible before blindly trusting someone’s word on the other end of the telephone.