Five BIG Mistakes They're Telling You to Make When Shopping for a Mortgage

By Carolyn Warren

The advice you've been reading about how to shop for a mortgage might sound nice on paper, but in real life, it fails miserably.

Believe me, I know. I've worked behind closed doors in wholesale lending, as well as for a mortgage broker and direct lender for over a decade; and what they've been telling you doesn't work. Here's what I mean...

Five BIG Mistakes

1. Compare the APR (Annual Percentage Rate)

Comparing the APR on loan offers is a BAD idea. The APR is a mix of interest rate and certain fees intended by federal regulations to help you compare offers, but it is a joke. Why? Big banks and mortgage companies have different ways of calculating the annual percentage rate. They purposely leave out some of the fees so they look like they're the cheapest when they're not.

Instead, ignore the APR and follow my directions for comparing Good Faith Estimates. Don't bother to fill out an application, either on the Internet or over the phone, before you get a Good Faith Estimate. Why? Because you shouldn't give out your social security number for credit checks before you've made a final decision as to who you're going to work with, and at this point, you're not ready to make that commitment.

2. Shop extensively.

Shopping dozens, or even ten lenders, is a fat waste of your time, and it won't lead you to your best deal. You'll spent hours on the phone over several days and end up with a meaningless pile of notes and Good Faith Estimates. Because you aren't comparing rates on the same day, and rates change daily, your analysis is worthless. You'll feel like you've done a thorough job, based on how exhausted you are, but in reality, you'll be no further ahead in making a wise decision than before you started.

Instead, use my Short List method; that way, you'll know exactly what you're doing and get a dirt cheap loan in minimal time. With my insider's plan, you make just three short phone call, ask one smart question, and get your best loan--pronto!

3. Ask ten questions.

If you read an article that gives you a list of ten things to ask while you're shopping around, you know you're getting advice from someone who really has no clue about what goes on inside the lenders' sales offices. When you call with a long list of questions to ask right off the bat, you communicate to the loan officer that you have no idea what you're doing, but you desperately want to get a good deal. The smooth-talking loan sharks love it, because it gives lots of time to use their charm and influence you with a big earful of nonsense.

Then either you'll stop shopping long before you complete number two above, "shop extensively," or you'll end up swimming in confusion and make a decision based on who impressed you with the best verbiage--which is often the same person who has the most expensive loan.

Instead, when you're calling around, use my insider's script, and then you'll nail down a great loan quickly, without stress.

4. Be wary of mortgage brokers.

The warning, so-called, says mortgage brokers aren't obligated to look out for your best interests. But neither are direct lenders or bankers. The truth is, all loan officers can offer you a good deal or a pricey deal. The ethical loan officers will advise you wisely and offer you fair pricing, and the greedy ones work to pad their own profits. Both ethical and greedy loan officers work at all three venues: brokerages, direct lenders, and banks.

5. Talk to past clients.

Every smooth-talking, over-priced loan shark has a bevy of past clients who will be happy to offer you a glowing recommendation. So don't waste your time with that. Obviously, a loan officer is going to give you only the names of happy people, not the ones who subsequently went into foreclosure.

Getting a mortgage does not need to be complicated or stressful. You don't have to wear yourself out by shopping broadly and calling a long list out of the phone book. Don't apply all over the Internet, and don't come armed with a laundry list. After seeing all the tricks that go on behind closed doors in the lending industry, I developed an easy plan everyone can follow. It's all in my latest book, Mortgage Rip-Offs and Money Savers, (Wiley Publishing), available at www.amazon.com and local bookstores. This way, you'll save time, grief, and get the good loan that you deserve.