Mortgage Lender Ads And How Borrowers Can Be Deceived
This BLOG On Mortgage Lender Ads And How Borrowers Can Be Deceived Was UPDATED On May 13th, 2019
Choosing the right mortgage lender that is suitable to you is one of the most important decisions borrowers will make in the home buying process for buyers and for homeowners for refinancing their current home loans.
- Most folks shopping for mortgage lenders will see advertisements on television, direct mailers, newspapers, and radio
- These lenders soliciting mortgage rates and how great they are and why they should contact them and have them be your mortgage lender
- The mortgage industry has strict rules and regulations when it comes to mortgage loan advertisement ads
- Lenders who violate them can get in big trouble via fines, suspension
- Sometimes their mortgage licenses can get revoked
Low Ball Mortgage Rates Are Signal Of Bait And Switch Tactics
Most lenders advertise mortgage rates and how low their mortgage rates are.
- Have you ever viewed a mortgage ad stating that mortgage rates are “As Low As 2.99%” when par mortgage rates for prime borrowers are 4.0% on a fixed 30 year Fannie Mae Conventional Loan?
- We will cover how consumers should watch out for mortgage lender ads and how many mortgage companies still mislead consumers
- This holds true despite the tough and strict mortgage regulations when it comes to mortgage lender ads
Mortgage Lender Ads On Super Low Rates
Most mortgage lender ads are advertisements that offer super-low mortgage rates.
- Consumers often see mortgage lender ads offering mortgage rates as low as 2.99%
- How can lenders offer 2.99% on a home loan when par rates are at 4.0% for prime borrowers
- A prime borrower is a loan applicant with the following:
- credit scores of 740 FICO or higher
- has a debt to income ratios of not greater than 40%
- has 20% down payment to put down on a conventional loan
- The way these mortgage lender ads work is lenders can advertise low mortgage rates
- But need to also disclose the Annual Percentage Rate and state a mortgage disclaimer
- Most television ads have the disclaimer that is several hundred words
- Very difficult to read and almost impossible to read in the time frame the ad is being aired
- But the mortgage disclaimer will state that a 2.99% mortgage rate is available for an Adjustable Rate Mortgage Loan or a 15 year fixed rate conventional mortgage with 20% down payment with a 740 Credit Scores
Be Aware Of Bait And Switch Tactics By Lenders
The purpose for these mortgage lender ads is for consumers to contact the advertiser:
- Most do a bait and switch
- Loan officers tell them that they can offer them the 2.99% mortgage rate if they have a 740 Credit Score and have 20% down payment to put down
- They also tell consumers this is only available if they choose the 15-year fixed rate conventional loan program
- Adjustable Rate Mortgage loans and 15 year fixed rate conventional loans with 20% down payment with 740 FICO have much lower rates than 30 year fixed mortgage rates
- This is very misleading to consumers
- Unfortunately, most mortgage lender ads’ mission and goal is for loan applicants call in
- Once consumers call in, they can do the bait and switch
- Same with mortgage advertisement mailers
- Mortgage companies spend a lot of money sending out mailers with ridiculously impossible low mortgage rates in anticipation for consumers to call them
- Once they call in, loan officers do the bait and switch
No Closing Costs Mortgage Lender Ads
Consumers should be very careful and aware of no closing costs mortgage lender ads.
- Everyone should know that there is no such thing as FREE
- Especially in the real estate and mortgage lending business
- Someone has to pay for it
- If a mortgage lender is offering No Closing Costs for a limited time through one of their ads, you are still paying closing costs
- Maybe not on the front end
- But you will be paying closing costs with higher interest rates
- Lenders are allowed to give a lender credit to consumers but that lender credit is not FREE
Cons With Lender Credit In Lieu Of Lender Covering Closing Costs
In lieu of a lender credit, lenders can give borrowers a higher mortgage rate.
- For example, if borrower get quoted mortgage rate of 4.0% with no lender credit on a $200,000 home loan, the lender can offer a $5,000 lender credit in lieu of raising the mortgage rate to 4.5% ( Note: These mortgage rates and lender credit amount is by no means accurate and are used for illustration purposes only )
- In a sense, the mortgage advertisement is correct where there are no closing costs
- However, the truth of the matter is that the consumer does pay for the closing costs on the back end by getting a higher mortgage rate
Ask For Options On Covering Closing Costs
Nothing is wrong with the borrower not paying the closing costs in lieu of higher mortgage rates. However, borrowers need to get offered the option of whether they want to come up with the upfront money to cover the closing costs or get a lender credit towards closing costs towards their home loan. Mortgage lender ads stating no closing costs and for lenders not offering free closing costs is misleading. Consumers need to be careful with lenders with aggressive advertisement campaigns.