Honest Mortgage Answers

When Banks Compete...

I am sure most of you have heard the popular catch phrase for Lending Tree, "when banks compete, you win." Well, I hate to break the news to you but, when banks compete, you lose. Let me explain how.

First of all, I am going to let you in on a few little secrets. The mortgage companies and banks that offer loan programs and rates on the Lending Tree website pay thousands of dollars to do so. When I say thousands, what I really mean is 10's of thousands of dollars. If fact, they usually have to pay a set-up fee just to get started that is over $10,000. Then they pay a "per lead fee" and some (if not all) pay another fee when your loan closes. I hate to be the bearer of bad news but those companies don't pay those ridiculous fees to offer you better rates and terms than their competitors. If they did, how would they make all of that marketing expense back? Think about it for a minute. I have talked about bait and switch a few times before so when you are on the Lending Tree website, keep an eye on those low rates and ask yourself how they are able to offer such low rates. Enough said.

Secondly, when you release your social security number to Lending Tree, you are actually releasing it to who knows how many mortgage companies and banks. Do you know what 50 inquiries will do to your 730 credit score? It's definitely not pretty. In fact, I read a mortgage article (I won't say the name of the author because I am not giving away free advertising to my competitors) about a man with impeccable credit that filled out an application on one of those "banks compete for your business" websites. This customer had over 150 inquiries within a 30 day period. His credit score dropped over 160 points. He went from an excellent credit loan program to a sub-prime or bad credit loan program. There was nothing anyone could do to fix the problem. He authorized the company to check his credit. Little did he know that his credit report would be requested so many times.

So the moral of the story is, "when banks compete you lose." Now I am not trying to discourage you from shopping around. But if you do shop around, make sure you finish up your shopping within 14 days of starting. Any credit inquiries within that 14 day window will not hinder your credit score as long as they are all for the same purpose. In other words, don't go car shopping or credit card shopping while your mortgage shopping. Stick to one plan at a time. Also, if you must shop around, pull your own credit report first and ask the mortgage companies your are working with to use that to qualify you for a rate. When you have the results, then settle on a mortgage professional to work with and let them pull their own report. 2 inquiries are better than 50 or 150.

As always, if you have a mortgage or real estate related question, please don't hesitate to contact me. I look forward to earning your business and your trust.

Posted by Jason Lash at 11:13 PM