The real estate lending market has always been quite competitive, but the spread of the pandemic left many buyers pinching pennies for an uncertain future. Lenders must now be truly creative, offering attractive terms to garner attention in the hypercompetitive landscape. Active buyers have plenty of options to choose from, comparing rates and shopping for lenders online. Unfortunately, some of them will fall victim to unscrupulous bait and switch tactics that will cost them thousands.
What is the Mortgage Bait and Switch?
The mortgage bait and switch occurs when lenders make special offers to attract consumers only to change gears mid-process. The bait may be a super-low interest rate, undisclosed terms, a high loan to value amount, or anything that gets buyers to apply. The switch typically occurs midway through the process, but it can happen anytime before closing. Borrowers are often forced into more expensive loans with penalties that have been overlooked or completely disregarded. Signing on the dotted line is an uninformed act of desperation to close the loan.
Avoiding a Bait and Switch
If it sounds too good to be true, then it probably is. The government has enacted rules and disclosures specifically designed to target mortgage terms and limit how much they can change before closing. While this is helpful, there are some things you can do to avoid falling prey to bait and switch tactics when mortgage shopping.
- Know your credit score. This is kind of the starting point for mortgage shopping anyway. You’ll want to know exactly what you can afford to spend and how much you’re willing to pay for it.
- Ask for a written proposal when you talk to lenders. While the single sheet loan estimate they typically offer is nice, you’ll also want to ask for the lender fees worksheet. This is where you’ll find interest rates, closing costs, and other associated fees that may be a part of the package.
- Ask for a mortgage rate lock and be prepared to pay for it. Many lenders offer short-term rate locks free of charge, but they typically won’t get you to the closing date. Asking for a rate lock up-front fixes the terms of your loan to help you avoid a bait and switch. Some lenders do charge fees or higher interest rates to lock a loan, so be sure to check.
Of course, you’ll want to compare different lenders and avoid significant financial changes after you apply for your mortgage. Major purchases and job changes should be put off until after closing. They can impact your financial profile giving lenders a prime opportunity to change the terms of your loan.
Mortgage shopping is a big job, so the professionals at Loanbidz.com have simplified the process. We connect investors with lenders across the country to ensure you get the right loan every time. Let the professionals at Loanbidz.com put you in touch with the right people for your next real estate transaction.