Nathan Jennison: We have a customer that got a loan estimate from their builder’s lender that looked like it was beating us. Now both of these loans are locked six months out. So, the rates are a little bit higher than you would normally see because it’s an exchange for a longer length of time on the lock. They learned that he was doing business with us and they said, “Well, we can beat that.” They sent him this loan estimate. Which he screenshotted and sent to us.
Nathan Jennison: Here we see an interest rate at 5.9%. When you look at ours, you see an interest rate of 6.125%. So clearly, there’s is better, right? Well, maybe not. Take a look at the loan amount. Ours is at $568,272. And there’s is that $572,722. What’s happening here? Well, if you scroll down a little bit, you’re going to see something called mortgage insurance. But we don’t have mortgage insurance. Why might that be? Well, we have a conventional loan here with 20% down payment. Which means that there’s no mortgage insurance on this loan.
Nathan Jennison: They put him in an FHA loan. There’s an upfront mortgage insurance that he has to pay at the beginning of taking an FHA loan for $9,850. That is mortgage insurance for a loan in which he already has 20% equity. This is him paying a whole lot of money for nothing. They’re not really going over that with him. They’re not explaining that. He’s thinking he’s getting a great rate, 5.9%. Why can’t we beat it? But, also take a look at this. You have the estimated monthly total, ours is $350 less than theirs per month. Even though the interest rates higher.
Nathan Jennison: On top of that, how would you feel paying almost $10,000 for something that you didn’t need? In this situation, they paid for mortgage insurance that he doesn’t need. With an FHA loan, he can’t get out of this mortgage insurance unless he sells the home or does a refinance further on down the road. This upfront mortgage insurance of $10,000 gets rolled back into the loan. Which is why we have a higher loan amount here. He’s not only paying $10,000, but he’s also paying interest on that for the lifetime of the loan. This was a move that was done to beat our offer. It was done in a way that is extremely shady.
Nathan Jennison: Here’s something else. This is the escrow payments that you pay when you close on a loan. This is what the lender collects to create the escrow so that they can pay your taxes and pay your homeowners insurance when those bills come due. If you’re halfway through the year, you have to pay more of that upfront to create an escrow so when the tax payment is due, there’s money there to pay it. This is a loan that’s going to close somewhere around October and taxes will be due in February and May. They’re going to collect one month of escrows. The minimum that they can collect is two months because that is what the lender needs for the margin. They’re not even collecting the minimum, let alone what really should be six-plus months.
Nathan Jennison: If you look at ours, we have six months, that’s $3,000. What they’re doing is artificially lowering their cost to close, but it’s not a legitimate estimate. When this buyer goes with them, not only is he getting squeezed into an FHA loan that he is not aware of, but then on top of that, he is going to get hit with way more cash to close, than he was expecting.
Nathan Jennison: This is shady practices. It’s part of why, when you are shopping for a lender, you’ve got to find a good reputable lender; a mortgage broker that is going to tell you what is needed and deliver it.
Learn more about what to look for in a lender here.