Dear Mr & Mrs Borrower,
"What kind of payment do you want and or feel comfortable with?"
This is a question that I always ask right in the beginning. But in many cases, what I get from the consumer when asking this question is, "what is my interest rate". And then I try to go into detail, asking my question over again and another question asking what your goals are in the near future when buying your new home.
There are several reasons why rate should not be an issue. Let me tell you a quick story about good old Mr. Rate. I had a borrower that called me up because a realtor recommended them to me. He had previously shopped with two other lenders, but that was a full week before I had spoken to him. I quoted him a rate on a Monday. Rates started to go up by the middle of the week and continued up until the following Monday. I called this person in the middle of the week and gave them a heads up about rates increasing. I sent this person an application on Friday, because he had an offer accepted on Thursday. I told him to call me anytime over the weekend. He decides to call me Tuesday and started asking me about why the rate was higher. He then decided to call a few more lenders, who gave him lower rates. Keep in mind, he needs to close in 2 Friday's, which is less than 2 weeks away and it is a FHA loan. This person doesn't even give me the courtesy of trying to match or beat the rate. Probably because the other loan officer was talking negatively about me and that I was making more money on his rate. Well, it turns out that Tuesday and Wednesday, rates improved. I could now beat this lender by 1/8%. As I type this, I am finding out that this lender might not get this closed in time now and is trying to point the finger at my company, because it took us a day and a half to release the FHA case number. Just as a FYI, this won't delay a thing. But the consumer and realtor doesn't know or understand this.
Overall, when I first asked this person what payment they would be comfortable with, it was way above what the payment was even with the higher rate. Too many people get hung up on trying to get the lower rate. Sometimes in your mind, a lower rate means that you can afford that payment. When in reality, you should start with what payment you can afford. And now because of the situation and just for the fact that this consumer went with another lender, he might not close on time. And it could cost him his deposit of $2,000. Mr. & Mrs. Consumer, do you want to take this kind of risk? Dealing with a mortgage professional should be important. Finding someone on your own, that might make promises that could be broken, could cost you money now and down the road.
So Mr & Mrs Consumer, why should rate be so important? If it doesn't match the payment that you would feel comfortable with, rate would be irrelevant, right? Think about this..... You tell me that you don't want to go over a payment of $2,500 a month. Yet, you want to hear rate. I tell you 6.00% and you are thrilled. But your payment on the home that you like is $3,500. Even if the rate went to 6.5%, your payment would go up to $3,600. It's way out of your price range. Let us do our job correctly, and the end result would be a very smooth and happy settlement. Take the risk of talking to an order taker, who loves to give rate quotes? Again, could cost you thousands of dollars when all said and done.
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For more information on FHA loans, please go to this link. The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger
Jeff,
Powerful Post,
This should be the first question any mortgage professional asks. This is what separates the professional people like yourself from the loan hacks of the world.
Great Post! That's the first question I ask. It's amazing how many people focus on rate and not payment. I was just shopped by a FTHB who got quoted a rate that was a lot lower than mine. I told them to go get the GFE and let me see it. Long behold the broker was charging 1% origination and 1% discount. The lowest rate doesn't equal the best loan.
Hi Jeff~ It is a very strange concept that some buyers strictly search just the interest rates, and alot of it is because they don't get the "whole picture" and are inexperienced and just don't know any better.
Where you stated "This person doesn't even give me the courtesy of trying to match or beat the rate. Probably because the other loan officer was talking negatively about me and that I was making more money on his rate." Well, we all know it is innapropriate for the other loan officer to be speaking negatively about another loan officer and unfortuantely some will do anything just to get the "deal" and some buyers just look on the surface and don't make good choices. That is where experts and professionals such as you try to lead them in the right direction. At least you know you are always doing the best for your customer and you have no trouble sleeping at night! Keep up the good work and keep on educating those buyers! What goes around really does come around.....
Jeff - You clearly get it. It's not about "getting a person in a home". It's getting the person in a home they can afford. If we don't get back on the right track, we are never going to get out from under the mortgage problems.
This is always the very first question I ask clients I also ask them about their long term goals. What may be comfortable for them now might not be 2-3 yrs from now if their goals include changes in their current income ie. going from two incomes to one. (children). That is why most of business comes from past clients and referrals.
Jeff, as always well written. Rate is such a powerful marketing tool..... that is all the consumer thinks..... I have had a young couple that I have been owrking with for a year.... cleaning up and reestablishing their credit and now we are ready to buy..... like you I asked what payment level will be comfortable for them and I usually get an answer then show them what that payment level translates into a loan amount. Some times they are very suprised at where the level is.
Jeff,
Everything you say here is true and accurate...but many consumers look at it as a 'sales pitch' by which a LO is trying to make more money...this is why I am in favor of educating consumers and having an 'informed' buying public!!! Some consumers spend more time researching a 'plasma TV' purchase than one in which their very futures and the welfare of their families are at stake!!! Thanks, Fran
P.S. And LO credibility isn't going to improve much with all the mortgage lender 'perp walks' we're reading about currently!!!
The lowest rate that doesn't close.... costs more.
I would never talk down the competition.... though it works for some.
Jeff - Good work, as typical. Our Industry (remember the plethora of mail & television commercials at one time) inundated folks with rate, rate, rate. They were bombarded with these shiny low rates and it reasonated in their heads to this day. I have to laugh when anybody says a fixed rate in the 6's is high. It's time for us to educate them on this mentality.
Learning lots, Jeff. Thanks for explaining things so that those of us for whom financing is not the forte get it.
I agree with you on this Jeffrey. It's not ther rate, not the amount they can be pre-approved for - but the final payment that should dictate the buyers choices. On another note, I am a Ms. - but did not see my kind represented above :)
GARY.... yes, it should be. But I would bet so many loan officers just give in with rate, because they don't want to tick off the consumer or push them away... searching for someone that will give them what they want. But to where service should be the issue, not promises that can be broken. Thanks for the polite compliment.
TODD.... and that's the second issue, which I have written about. Good Faith Estimates - FHA loans or conventional loans -- A true understanding of.....
Do you know how many times when someone tells me that they got quoted a rate, that I would ask them, what is their payment and costs... what is the lender charging you. The consumer says, "I don't know", they didn't tell me that part. Of course not. Now you can shop blindly in the dark. The other loan officer doesn't want you to know. Sad, but so true.... thanks for the compliment.
VICKIE...... inappropriate or not, it's part of sales, so they can try to hold onto the deal. If they can make someone else look bad, the consumer will stay with that current lender. Not that it's right, but that it's just a way of life. And yes, I can sleep at night. ;o)
KAREN.... I think several of us get it. But it seems like the ones that get it, all know each other. It's the other dodos in the business. And there will always be a few in the business. I call these people order takers.
DARCY...... we seem to be on the same page. I had a client actually tell me that I was asking too many questions, that the other lenders didn't ask that many... Sad, but what are you going to do.... I know I am doing my job. thanks
JOE..... yes, rate is a powerful marketing tool and it's highly abused and misleading... expecially when someone shares the APR and the APR is about 55 BPS higher than the actual rate. And even that can be misleading and confusing. Yes, these consumers need someone to educate them and not hide bits and pieces.
FRAN...... in my case, it could have looked like I was trying to make more money, because my rate was higher, 5 days after I originally spoke to him. And then he got bad advice from his father who was talking to his two banks, who told him that prime hasn't changed. I was like... rut row.... I won't be able to control this person because he already had his mind made up. Unfortunately, scenarios such as this one will happen... just the nature of the business.
TOM..... yes, that lower rate that doesn't close. The client that I love the most, when talking about this, are those that went through this once before. They understand this and as long as I point out to them certain thing and educate them, they generally have a good idea that I won't do the same to them.
JASON.... it's been a long time for us to educate the average consumer. The problem that I see is that some of us do, but then you get that loan officer or lender that just gives them what they want to hear. Will there be a bait and switch? Not sure, but the possibility is strong. Thanks for the polite compliment.
ELAINE...... my pleasure. Thanks for stopping by and commenting. Best of luck in the near future.
JENNIFER...... Ms. Bukaty.... or ... Jen Jen...yes, we agree that it should be what you are comfortable with and not what you qualify for, which would make the rate issue irrelevant. And sorry about the Ms... but I can't include everyone... lol
This is an age old sales technique that focuses on the what the borrower actually wants.....and when it is represented the way you have presented it Jeff, it put the borrower in a place of power. The buy what they can afford, based on what their particular situation. And really, how many times have you have had a discusion openly about your great 5.50% rate?....I have been to a lot of social functions and not have not had those dicussions, but I think they are tacky. You clearly have the right focus on selling Jeff....a true professional
Great Story... I always answer the rate question with "I rate a 10, what do you rate?" that usually gets them smiling, and I go into my speach about payment vs. rate.
Jeff,
And hence the option arm was born - payment, not rate.
Ron
They definietely need to know more than the rate, because as many of us know they people quoting the lowest have numerous fees that they are not aware of, if someone is going to rate shop only they should shop by the APR.
Have A Great Day
Great post! We always try to position ourselves as "Consultants" rather than "Loan Officers" or "Mortgage Brokers" ... when people know and understand that your main concern is that they make a wise financial decision (whether they go with you or not), they respect that.
And, even if you don't get the loan, follow up with a thank you card, put them on your mailing list - you can't believe how many deals we have gotten precisely this way.