How loan officers TRICK YOU (and how to prevent it)

Certified Mortgage Advisor
NMLS 1701021
Published 
August 3, 2021

Higher cost, why? Let's find out why

The last thing you want is for a loan officer to tell you that buying a home is going to cost $ 4,000. And then they say, things have changed and it's actually going to cost $ 6,500. And then a few days later, things have changed again. And now it's $8,900. And you're sitting there thinking where in the world that all these increases come from and do we even have the money to be able to pay for this. This trick that loan officers do is so compelling that I've lost clients because of it.

How they win your business

Loan officers know that most people like you are shopping their loans to find the best rates and the best costs. So to win your business, so many loan officers will only quote certain costs that they're required to tell you when they show you how much it will be or how much it will cost to buy a home and I'll cover on what these two tricks are.

But a perfect example of this is I was talking to one of you with someone who was watching one of my YouTube videos. And they reached out to another loan officer on YouTube. And I'm not gonna name any names here, but he asked, he said, "Hey they gave me a quote, but all they did was send me an email with a rate in it and nothing else. And is this normal? It was just, Hey, this here's your rate. Let me know when you find a home and we look forward to helping you". And I was talking with them, like, how can you make an important decision about a loan with such little detail? And the simple answer is you can't, if you just have a rate, you don't have all of the other information about a loan, then you can't find what's going to be the best option for you.

In likely there's a trick that might be happening in here where a loan officer's trying to get your business this way and not being able to make the choice on which loan is the cheapest option for you can cost you thousands, if not tens of thousands of dollars over the period of the time that you're in the home and you have that loan.

#1 Hiding your True Closing Cost

So here are the two main tricks to watch out for when you are talking with a loan officer. So number one is hiding your true closing costs. So when you get pre-approved by a loan officer, they likely will give you a quote showing you how much it will cost to buy a home, things like your down payment, your closing costs, and everything that would include appraisal fees, taxes title costs, homeowners insurance.

However, your loan officer and lender don't charge all of those costs. A lot of people think that the lenders have been charging all these fees and they're really not. They're giving you estimates of those fees. Lenders can only control what is called Section A Fees.

What is Section A Fees

Section A Fees are also known as origination charges or origination fees. They're the only fees that can be charged by a lender. So these are things like an underwriting fee, administration fee. It's Section A, page two in the top left of a loan estimate. They're not allowed to increase after being quoted on a loan estimate. So if a lender gives you a loan estimate that details what their Section A costs are, let's say it's a thousand dollars. They can't come to the closing table and then say, it's well, it's actually $2,000 now. They have to honor that quote or let it be lower.

Loan Estimate vs. Loan Quote

But the issue here is that a loan quote isn't binding, whereas a loan estimate is. A loan estimate is an actual legal document regulated by the CFPB we're a loan quote isn't. So it's frustrating is most of the time you can't get a loan estimate until you're actually under contract for a home. So you have to hope that the quote that you get from a loan officer when you're pre-approved is accurate.

Ask your lender the details of your closing cost fees

So what ends up happening is you ask the lender, how much is it going to cost in closing costs? The lender not telling the full story to you, only quotes you what they charge, they only quote you the Section A Fee and not all of the other closing costs that are happening in a deal. Section A Fee is an only portion or only a sliver of what the closing costs are. The rest of the closing cost is not charged by the lender. Again, things like the appraisal title charges, recording fees, taxes, homeowners, insurance, even though the lender doesn't charge these things, they need to be able to estimate those to you. So you can get a full picture of what's going on when you're actually buying a home.

It might seem innocent, maybe to some, but it's entirely unfair for loan officers to expect most people to understand how all closing costs work together, especially in comparison to what a lender charges and what all the other estimated third party charges are in closing costs. They hide behind this idea that they're going to show you their numbers, and not helping you understand the total costs of buying a home, almost putting the burden on you.

Be careful with low cost, research first!

It's like they sit back and you should've known all these other costs. It's just entirely unfair. And there's a lender in my area that does this all the time. So all their advertisement say our closing costs are only 499, and everyone around here goes crazy. Cause they're like, it's only 499 over here with this lender, and so what's frustrating is when I would quote to clients, I would show them the whole picture. You have, these are what your estimated taxes are going to be. This is what your insurance is going to be. Your recording fees, appraisal title fees.

None of which are charged by us as the lender. And those fees will add up to several thousand dollars, right? Just in Texas, you're probably going to be paying a few thousand dollars, put into an escrow account. You're going to pay a year of homeowner's insurance upfront.

The title costs are going to run you probably at least a thousand dollars. And so what ends up happening is people would compare that like this several thousand dollars of third-party costs not charged by us, the lender, but then compare it to 499 because one other lender, that's what they charge in their section eight costs.

But they're not telling you the full story. And it's so frustrating when I'm helping a client understand their total costs. And they say this lender over here, they're only charging 499. And you're charging thousands. So we're going to go with them only to realize far too late in the process that the lender hid most of the other closing costs and then blame the client for not knowing how closing costs work.

It's so backward in far too many lenders only show you their fees because they want you to think their costs are super low compared to the full quote from other lenders. So if you're a loan officer, isn't showing you all the estimated fees, even the ones they don't charge, they likely don't have your best interest in mind. It's dumb and dishonest, and I'll show you how to protect yourself from it.

#2 Artificially Lowering Your Monthly Payment

But before that one, another trick that loan officers can do is by artificially lowering your monthly payment on preapproval quotes. So hiding quotes in two different ways. The down payment closing costs that we just talked about and also artificially lowering your monthly payment.

There's a prominent lender out there that works with a lot of veterans. I'm not going to say their name. But for some reason, their software I believe he got updated. It wouldn't show fully accurate monthly payments to people when they were giving quotes, see a monthly payment quote, should include your principal, your interest, your mortgage insurance, your homeowners, insurance, your property taxes, and homeowners association fees as well.

That should all be included in your monthly payment because it's all something that you're going to have to pay. So why not show the full thing, even if it's a quote, things like taxes, a lender has to estimate they can't just leave it out because they don't know. I don't know if they just had bad software or what, but it would never include escrow payments. So things like taxes and homeowners insurance. So they were always left out.

Can you imagine a lender quoting you a thousand dollars as a monthly payment? They say, Hey, it's only going to cost you a thousand dollars a month to have a mortgage for this home, but then you get your first mortgage payment it's actually $1,700 per month because of the extra escrow that wasn't included in that thousand dollars, you start to feel a little cheated and more sneakily than leaving off escrows. Our loan officer who kind of drastically quotes a client on this happens often with online lenders who aren't familiar with the location or they can't be bothered to do the 60 seconds of research it takes to figure out like the local cost of our client is at.

Do your research

So for instance, like taxes on a home around here in Dayton, Ohio $4,500 per year on a $330,000 home. It's not difficult to look up, find the area someone's looking in, and look at what average taxes are around the area. But so many times I've seen quotes from other lenders where the loan officer said taxes are only $2,000 a year.

And the client will go with that lender because they think that their costs are. Like, no, it's just the loan officer, not giving you a quote that says accurate and as possible. Because a lender can not control taxes. It doesn't matter what they quote you. The county will determine your taxes. So just because a quote is low doesn't mean that it will actually be that cheap when the time comes to write the check.

Know and Understand

So how do you avoid getting tricked? Knowing the tricks is half of the battle, the other half is understanding exactly what you need to do as a borrower to make the right decision. So far too many clients choose the wrong lender and then realize the cost got switched on them when they went under contract, and a lot of people feel like it's too late. Just know that it's not too late at that point to switch if you need to. But how do we avoid even getting to that point in the first place?

Compare Lenders

So really one of the best ways to avoid getting tricked is when you're comparing lenders. So first of all, you do need to be looking at different lenders. You can't just look at one and then say that works for me and move forward with it. Ideally, you want to be looking at at least three lenders and only decide on the lender using the Section A costs. We want to see the other estimated fees. I want to see what an estimate of taxes and insurance and everything looks like so I can see the full picture, but I don't want to choose different lenders. I don't want to go with lender A just because they had lower taxes and lenders than lender B. Because the taxes are going to be the exact same, no matter the home you choose. The only thing that's going to be different between these lenders is the Section A Costs, the rates, and mortgage insurance that they have as well. So only want to be looking at those.

You can ask a lender

What are your Section A costs? What are your origination costs? Those are the only things that we need to know when choosing a lender. It doesn't matter what the quote for insurance is because insurance is something that you're going to shop for on your own.

Compare the monthly

Compare your monthly payment with your own independent research. So they're likely going to give you a monthly payment. They're going to estimate taxes and insurance.

#payment

I have a tool for you. You can text my number 937 358-6542 text: #payment to it, and it will send you this free calculator where you can go on compare home, side-by-side look at the monthly payment as well, and it will give you some averages of taxes you can put in there. You can also go look up things on something like Zillow and put in taxes in there too, to get an estimate of your monthly payment and compare that.

Ask for full breakdown

Then finally ask your loan officer for a full breakdown, including you definitely want to have your rates in there. You also want to have all the estimated costs. Everything from insurance to taxes, recording fees, title, appraisal, all that needs to be included in there. Even if it's estimated, even if it's not charged exactly by the lender. And I also want a full monthly breakdown. So in the full monthly breakdown, I should be seeing principal interest, mortgage insurance, property taxes homeowners insurance, and homeowners association fees if you're looking in an area that has homeowners association fees. You should be seeing all of that from your lender and not just an email with a rate or not just a quote over the phone. I want to see a full breakdown of all of those things.

Now, not every loan officer's bad to trick you but you do need to be aware of how you can protect yourself as much as possible and choose the best lender for you, which is exactly why I made this blog on choosing the best lender who will guide you through the process and help you save the most money and choosing the cheapest loan off.

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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.