Mortgage Myths

Real estate agents have a responsibility to do what is best for their clients. However, this doesn’t always happen. Getting a mortgage is a significant decision for a homebuyer. In many cases, the real estate agent will pressure clients to use their preferred lender. Unfortunately, a referral is often made to a lender that is financially or professionally supporting the real estate agent, rather than because it is the most cost-effective solution for the homebuyer.

The Truth Behind Mortgage Rates
One of the reasons other lenders have higher rates than we do is due to the level of compensation the loan officer is making. If a loan officer wants to make more money,
they simply sell their clients a higher interest rate. When this happens, the client pays more than they need to. Clearly, a real estate agent who wants the best for their clients would not want to add this additional financial burden to people they care about.

For example, a client recently called into City Creek Mortgage to compare the loan offer they received from their real estate agent’s preferred lender. The client was looking to borrow $350,000. When I shared with the client that there was enough income in the rate they were being quoted to purchase a brand-new Toyota Corolla, they were upset. Generally, we can save most clients between 20-50%. In this case, it was much more.

Lenders Who Serve The Agents
Most mortgage lenders market their services to real estate agents under the premise that they will help them grow their businesses. A business model that is designed to provide the benefit to the real estate agent generally comes as a cost to the homebuyer. For example, there are some mortgage companies that have several offices in a community just to provide the convenience to their real estate partners. Clearly, the agent’s convenience provides no value to the homebuyer. However, the homebuyer is the one paying the price each month in the form of a higher mortgage payment.

A Consumer-Focused Model
I believe the right business model for a mortgage company is designed with the homebuyers’ best interests in mind. At City Creek Mortgage our promises and guarantees are to our clients, not to real estate agents. We are a low-cost provider that is designed to keep more money in the pockets of hard working Utah families. For 20 years, this has kept our clients coming back and referring their family and friends to us for their mortgage needs.

If you need help evaluating the price offering of another lender, we can help you. We can estimate the amount of commission income priced into the loan and compare that
to what is priced into a loan offering with City Creek Mortgage. We do what is best for the homebuyer, with the long-term goal of squeezing out the margins in a mortgage industry and eliminate the over-compensated loan officer. As a result, we are the most feared second option by our competitors.

Help us get the word out. When you hear that your family and friends need a mortgage, have them call us. By simply having salaried loan officers and a commitment to make less off each loan, we save people a lot of money. We are Utah’s best mortgage choice and appreciate your continued support.

Research is a very important factor in any mortgage loan process, and at City Creek Mortgage, we’re here to help you find answers and clarity in your search for the best home loan situation. Our brokers can answer any questions while helping you navigate what can be a complex landscape.

Unfortunately, the mortgage world still has its share of bad information and flat-out myths. Let’s look at a few of the most common misconceptions here, plus what you can do to avoid these areas and get the best mortgage rate.

The Pre-Qualification Myth

We’ve discussed pre-qualification and other application stages in previous blogs – pre-qualification itself is meant for nothing but a very general idea of your budget and the kinds of mortgages you may qualify for. There’s no credit report or background check involved, and neither you or a lender is making any kind of commitment. Some people believe that if they pre-qualify for a loan amount, they’re guaranteed to get that amount – this just isn’t true. Pre-approval, on the other hand, is a far more comprehensive and official process.

Renting Saves Money

It’s a common assumption that renting is less expensive than owning a home, but this is generally backwards. In reality, it’s almost always less expensive to pay a mortgage than to rent a comparable home – especially for anyone willing to put in a bit of time on things like maintenance that are generally covered by a landlord in a rental situation.

30-Year Is Always Best

The 30-year fixed-rate traditional mortgage tends to come to many people’s minds, and while these are popular and often the best option for you, there are plenty of times where there are other preferable choices. The average homebuyer only lives in their home for about seven years – this makes adjustable-rate mortgages potentially more attractive to people on shorter timelines. It could also make a shorter loan term more attractive. Speak to our brokers about any specific questions here.

Pay Quickly!

It’s natural to want to pay off debts quickly, but paying absolutely as fast as you can might not always be the right course of action with a mortgage. Paying your mortgage quickly may lower your principal debt, but that’s not always the same as instant equity. If that money isn’t going back into some kind of benefit for you, you might be better off investing that money and earning more interest than you would by paying a similar amount to your mortgage. Mortgage interest may also be tax deductible.

Down Payment

The rule of thumb in the mortgage industry has long been that a 20 percent down payment or more is needed for a home, and if not, private mortgage insurance will be required. Today, however, there are other options available that make this rule of thumb more of a myth – things like FHA loans and piggyback mortgages (involving a second mortgage to lower loan-to-value ratios) are great options for people who are unable to get 20 percent down and don’t want private mortgage insurance.

To debunk more mortgage myths or find out more about our mortgage services, speak to the experts at City Creek Mortgage today.

With so many details and pieces of information constantly flowing in the mortgage world, it can be tough to keep up. Staying on top of trends, best business practices and all the ins and outs of a fast-paced industry isn’t always easy.

Enough confusion in large groups of people produces misconceptions, and there are plenty to go around in the mortgage industry. At City Creek Mortgage, it’s our job to spot fake trends or common areas of confusion, and to never let our clients be exposed to these.

In general, though, there are a few frequent myths that pervade the industry. Let’s take a look at a few of these misconceptions and set the record straight.

Credit Scores

Most credit scores are expressed using three numbers, which represent three major American credit bureaus: Experian, TransUnion and Equifax. It’s common for people to assume that when a lender looks at your credit score, all they’re looking for is the highest of the three numbers. This is not the case.

In reality, lenders will average your three scores in most cases. For people applying for a mortgage with a co-borrower, it’s even worse – lenders will almost always default to whichever of you has the lower credit score, and lock in your rate using those calculations. Make sure you adjust your credit score expectations accordingly.

Interest Rates

There are a couple common misconceptions regarding mortgage rates.

  1. Fixed rate is always better: Fixed rate mortgages do hold certain significant benefits in many situations, but these don’t cover 100 percent of the possible outcomes. They’re much more common now as lenders are more careful following last decade’s financial collapse, but they’re not the only option. There are situations where adjustable rate loans are preferable, especially in the short term.
  2. Your quoted rate is always your actual rate: Mortgage rates are tied to daily bond trading, and as such they change every single day. You’ll often be given a rate during the pre-approval process, but there’s a good chance this rate will have changed by the time you’ve actually found a home. It’s important to keep on your lender for updated quotes throughout this process.

Lender Choices

Laws prevent lenders and real estate agents from referring customers to each other and profiting via that two-way street, but this doesn’t mean your agent won’t have preferences. Certain lenders might have more experience with your area, and on the flip side, lenders who lack vital skills for a particular locale or type of mortgage can really damage the loan process.

The laws prevent outright collusion here, as we said, but it’s not uncommon for real estate agents to prioritize their purchase offers based on lenders they’re familiar with. Finding a lender with a good reputation locally, such as City Creek Mortgage, can go a long way to getting you the results you desire.

Want to learn more? City Creek Mortgage is a top mortgage company in Utah, with a staff dedicated to serving your every need.

Given the amount of misinformation continually circulating about mortgage loans, we’re ready to set the record straight – Mythbuster style! Oftentimes, misinformation keeps people from making decisions that could benefit their financial situation. However, through clarity and understanding of mortgage fact vs. fiction, different opportunities never realized before may arise.

 

Myth #1 – All loans have closing costs that the borrower must pay.

 

Truth: In exchange for a slightly higher interest rate you can receive a credit back that may cover all of the closing costs involved in the mortgage. This includes paying for the appraisal, underwriting fees and all title fees. Although there are certain restrictions involved (such as owner occupancy, loan size, loan-to-value and credit score), we typically suggest this option when it is available.

 

Myth #2 – Only Refinance if there is at least a 1% savings to the interest rate.

 

Truth: If the loan does not have any closing costs that are being paid by the borrower and if the new mortgage balance is not increasing, any level of savings will be of benefit. For example: If a $250,000 loan is currently at a rate of 4.75% and we can do a no-fee loan at a rate of 4.25%, there will be a .5% savings to the interest rate without increasing the balance.

 

Myth #3 – All loans must be kept for 5 years in order for it to be worth refinancing.

 

Truth: If there are not any closing costs that are paid by the borrower, the breakeven point is immediate. Therefore, even if there are plans to sell the home in two years, it is worth completing a Refinance to lower the interest rate. The borrower will, in turn, benefit from this lower interest rate for as long as the loan is in place.

 

Myth #4 – If I have already refinance my loan in the last two years I should not refinance again.

 

Truth: First of all, the sad truth is that many people have paid thousands of dollars to refinance their home loans two or more times since mortgage rates began to fall in November of 2008. Now that rates have dropped even lower, many are stuck in the dilemma of wondering if they shouldrefinance again. Although the decision to refinance in the past seemed to be good at the time, the reality is that many now owe more on their home loans than they did before they refinance the first time. This is typically the result of receiving bad advice.

 

Even if a homeowner has refinance recently, it is worth looking at the option again as long as a no-fee interest rate is lower than their current interest rate. If the no-fee interest rate is the same or higher than the current interest rate, it is best not to refinance.

 

Having a professional mortgage planner who offers superior advice is the way to ensure you are making wise decisions with regards to your home loan. For a no-cost or obligation mortgage review, call my office at 801-501-7950 or e-mail me at mike@dev.citycreekmortgage.com to schedule your review.