MORTGAGE SECRETS: EPISODE 6
While you might think that the mortgage rate is the most important aspect of your loan shopping experience, there are several things to consider before jumping for the cheapest available.
In this episode of Mortgage Secrets, John Downs of Downs Capital shares stories from his 17 years of experience in the mortgage lending industry to illustrate how numbers shouldn’t be the only deciding factor in your loan decision. Signing up for a mortgage is a hefty commitment that goes beyond a monthly payment. You’ll be starting a long-term relationship with a loan officer, so you’ll want to make sure you pick the right one.
This episode dives into what makes a loan officer worthy of your business—and friendship.
This is Mortgage Secrets Episode 6
In this episode of Mortgage Secrets, we’re going to talk to you about how to shop for a mortgage the right way, and I’ll give you the secret right now: It’s not just about rates; it’s about the lender. This is Mortgage Secrets Episode 6, and I’m John Downs.
Every day, we wind up getting phone calls and emails from brand-new clients that have never talked to us before, and they always start with “John, what is your rate on XYZ mortgage today?” The reality is the rates that we quote are virtually the same as what every other lender out there quotes, and we’re all within hundredths of hundredths of percent of each other. And even if we’re a smidge higher, we can probably match theirs, and even if mine is lower, they can probably match mine. So, I can virtually always guarantee that we’re going to have about the best rate you’re going to find in the market.
But when I get people that start with rate, I find that that’s not really what they’re looking for.
What they’re really trying to figure out is:
What do I qualify for?
How is this going to work?
What does this process look like?
But they start with the rate conversation because I just think that’s how consumers are programmed. If we assume rates are virtually the same everywhere, what are you shopping for? What exactly are the key things that you’re going to look for when you’re choosing your mortgage lender?
Here’s what I think people really want and need: People should actually shop the loan officer.
If you think about the whole process, there is, obviously, a rate that is given by a company that has a loan officer that you speak with that typically deals with an operations staff that includes an underwriter to help move you towards closing. But the most important person in that entire puzzle is the loan officer.
In my opinion, that person needs to be smart. They need to have a heart. They need to have a brain. They need to look after everything that’s important to you: your goals, your life. I always say that a good mortgage lender should be a cross between a financial advisor or financial planner and a mortgage underwriter. I think the flaw in our industry is everyone is so geared and focused on rate, rate, rate that they get these mindless people that sit there and plug in twelve pieces of information and spit out rates all day, and they usually end it with something like, “Well, isn’t that great? Wouldn’t you like to proceed?” I just think that’s wrong.
So, let me give you a personal story that will shed some light on what I just said.
Obviously, I’m a person. I own a house. I need a mortgage. Routinely, I’ll go and get mortgages from other companies just to kind of experience the process. What advice did they give? How did they handle the customer? How did they move through the process?
Recently, I took a mortgage application, and I actually put into their system… It’s an automated system (you couldn’t get a human first), and you put everything that you thought you wanted to do. I put the most ridiculous structure that no one in their right mind would actually do, given my situation.
Then, when the phone rang, and they called me to give me more information, it was all about that—nothing else. It was “Based on what you put in, sir, here are the interest rates—which one would you like to choose? Isn’t that great? Rates are at an all-time low, and it’s a perfect time to act. We can have this closed for you in 30 days.” They went right into their sales pitch to try to lock me down. They didn’t challenge me. They didn’t say, “What in the heck are you thinking? That’s just silly.” They said nothing. It was all about converting me instantly on the phone with my emotion.
I don’t think that’s right. I think people know what they know, and I think there are professionals out there in the world who are trained experts. Mortgage loan officers should be trained experts in challenging you with whatever idea you have, giving you alternative thought, and helping you build a plan that truly makes perfect sense—and not sense for them but sense for you.
Back to when I get those phone calls about “What’s your rate?”
It goes one of two directions. I instantly go into asking questions because I do need to know more about you before I can really quote something, and sometimes you can see that frustration where they just don’t want it. They want that rate. And it’s frustrating. It’s kind of not in my wheelhouse. I lose a little bit of motivation in those cases. We say what the rate is, and you may or may not hear from that person again.
We try to ask a lot of questions because some of the answers to those questions will give us pitfalls for the future. It will help us better select a product. It might lead to a different recommendation or a completely different structure than what you had in might. But without that little bit of downtime and dialog back and forth, it’s really hard to give you an appropriate quote.
I call this conversation the “goals conversation,” and I think that goals conversation leads to rates. Rates without a goals conversation are just not good rates. I’ll give you an example of a goals conversation.
It’s when I say, “In a perfect world, what does this thing that you buy look like?” “Roughly how much cash if this happened would you use?” “Roughly what budget do you have in your mind today?” Then, based on those answers, you can kind of tweak everything, and then we can ask more questions to fill in the blanks.
Throughout that process, what we find is we can actually pre-approve people better through a detailed goals conversation than we can through any online application where we’re just looking at data entry because, quite frankly, that data is only as good as it was entered, and, in many cases, it wasn’t entered correctly. From a lending standpoint, pre-approval letters are insanely important. If you’re out there trying to buy a house, most real estate agents would say, “I’m not even going to sit here looking at houses until you have this letter,” so I think everyone is programmed to try to get that letter as fast as possible. Then, when you finally find this house that you want to purchase, it’s that letter that’s used that says to the seller of that property that you can afford to buy that house. Your contract says, “I want to pay this much for it,” and then the lender’s letter says, “Oh, by the way, they can afford it.”
That approval letter is really important, but know that there are many degrees of approval letter. There is an approval letter trying to figure out all of the pitfalls that exist in the future once you go under contract, and then there is the pre-approval letter that says, “Based on everything we’ve said, I kind of think maybe you should be fine.”
In today’s world, I know so many people want to keep this entire process fast and simple. They want to keep it digital, and, quite frankly, they’re only doing themselves a disservice. You actually have to use this old thing that’s called a telephone. I know that texting is cool, and I know that email is awesome. There’s that direct response, and you can get instant information, but really, to figure out how to navigate the home buying process—the most important thing and the biggest debt you’ll probably ever carry—you need to have some dialog.
And through that dialog, a really great relationship unfolds. The more you know about somebody, and the more you hear about their goals and ambitions and their trajectory in life, the better you can help guide them. And, quite frankly, you do get tied together emotionally. Again, if you have that heart, you genuinely care about how this whole thing unfolds for them, and you want to make sure at all costs that they’re not going to make a mistake.
Now, let’s talk about relationships in lending.
Of course, you called, and you tried to find out about a rate, and then we sort of navigated through a goals conversation, and then we said, “Really, you’re shopping a loan officer, and you’re trying to look for heart and advice and direction.” But let’s explain a little more what the relationship means.
“Relationship” means two things. One, it just means looking after that person and making sure the best possible situation happens for them. There’s a bit of technology that will come into this, too, though. The way we view relationships is we think, if we give you a loan today, that whatever loan you get 20 to 30 years from now, we’re going to do that one, too, and we’re probably going to do multiple refinances throughout the process, and then, eventually, you’re going to have kids, and we’re going to do your kids’ loans, too.
I’ll give you a story about something where the relationship didn’t happen.
There was a gentleman a few years ago (and I don’t blame him for this). There was an interest rate difference, and it was by 0.1%. $500,000 loan, and our rate was 0.1% higher. Of course, if you look at that, that’s $500 a year. Tax adjusted is $300 a year. As a consumer, you would look at that and say, “Well, it’s $300 a year. It’s less expensive. The other company was a really good company, a reputable firm. Everyone in the area knows that they like them. They perform well.”
But he called me just a few weeks ago. He said, “Hey, John, we didn’t get to do business a couple of years ago, but I’m looking to refinance.” When I looked at his loan, I realized that the time that he closed in late 2016, we actually had a refinance wave where rates touched again to the all-time lows. We basically restructured the debt virtually for free for all of the people that bought in his same timeframe.
His lender never reached out, so although he saved $300-ish a year, because he missed that refinance wave, it’s now costing him over $3,000 a year of opportunity. He wasn’t reached out to. He wasn’t in our system. The other lender was just looking after that transaction, not the long-term relationship of making sure that that person was in the best possible situation forever. As a result now, it’s costing him tremendous money.
Let’s dive into that story a little bit more. We said that was all about relationship, but really that was all about loan officer.
If you have a mindset of taking care of your clients forever, you figure out ways to monitor and track those people so that you can reach out strategically at the right times. I think a lot of people go out there and say, “Well, I’m going to look for the company.” Shopping companies is great, but what’s interesting is even the crappiest of companies wind up having their $100 million producer, and when you meet that $100 million producer, you realize he’s just a really good loan officer. He fits the bill. He has the heart. He has the systems. He’s smart. He knows guidelines. She’s an underwriter backwards and forwards that happens to do mortgages that happens to also be a financial planner, right? That’s the recipe of a great loan officer, and that’s really what I think people should shop for.
So, in the end, just know that if you’re out there, and you’re thinking, “I want to get a mortgage, and I want to shop for it,” rate is important. Rate is a piece, but totally buy into the person on the other end of the phone. Who is that person? What is their methodology? How do they look at their business? How do they look at this relationship? Will they be around 5, 10, 20 years from now? Will they be contacting you at the right time when rates change? And do you like them? Do you trust them? Is the connection there? Is the connection real? I think you should make your decision mostly on that. Again, rates are important, but this is more important.
If you want to learn more about shopping for mortgage, be sure to download my companion e-book to this podcast at DownsCapital.com/shop. Or, as always, you can email me at info@DownsCapital.com. Thanks so much for joining us!
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In this episode, we’ll cover:
- What makes a great loan officer?
- How can I know if my loan officer is in it for the long-term relationship?
- How much do home loan rates vary in the market?
- How can I start a goals conversation with my loan officer?
I’m happy to answer your questions. Fill out the form to get answers!