My father always used to say, if it is too good to be true, then it probably is. Our friend Anna Kimball with Academy Mortgage recently shared this story about some of her clients who almost got caught in a “to good to be true” situation.
I had a borrower who wanted to refinance their home. They went online to get the best rate possible. They ended up with a lender called ‘ Loan Factory’(Not the real name for the safety of borrower and lender, but a real story!) and this lender promised them the moon, low rates, no closing costs. They were told that they could lock today if they provided the lender with their credit card information. The lender advised that they would charge an upfront $750 for the loan application and the appraisal fee.
My borrower then called me to see if I could match this wonderful loan that was promised by ‘Loan Factory’. He told me the rate and fees and I was shocked by what they had offered. So did my research, the ‘Loan Factory’ was hit or miss, you could get the deal of a lifetime or lose $750 to lock a loan that will never happen. I got a look at his Good Faith Estimate (GFE), which is a form that itemizes the fees and costs associated with the loan. The GFE provided by ‘Loan Factory’ stated that they only owed $6 in interest and $6 in taxes annually! Anyone who has bought their home knows that those numbers are absolutely wrong. As I continued to review the GFE I saw other items that just seemed funky. When I saw these I knew that this had to be some sort of scam. Luckily, for my borrowers I was able to find a better deal that was real and we were able to close. In addition the loan was also done locally rather than down in Ventura California, which was convenient
This is known as a bait and switch. The lender promises the moon in exchange for the money up front, knowing that once the buyer is cash committed they are less likely to leave the deal. Then right before funding the loan fees that should have been in the original GFE will appear and it is too late for the borrower to escape.
A word of advice to my friends who are rate sensitive, do not rate shop Online! It will cause you more headaches and heartbreak than sticking with a local lender who is honest and can tell you upfront what the real cost will be.
Story Provided By:
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