The “Shopping” Mentality
So you need a mortgage, and you need it fast! You’re looking for the best rate so why not shop around and contact multiple brokers to see what you can get?…Buyers Beware, although in most scenarios you may think this strategy may work in your favor, it often works against you in others. Allow me to explain this in further detail…
Shopping For a Mortgage – Shopping for a mortgage is normal. You’re looking for the best rate and the best term. Most likely, you’ll start by bouncing from bank-to-bank to see which one can offer you the lowest and most competitive rate. Each bank will assess your financial situation and offer you the best rate that you can qualify for. Sometimes, competing banks will try to beat their competition by matching (or slightly beating) their offer in an attempt to win your business. In simpler terms, it’s a price war – or in this case, a ‘rate war’. However, that’s only if you qualify for a mortgage through the bank… but what if you don’t qualify? For those who don’t qualify for a mortgage through traditional means (public/banks funds), it will be more difficult to obtain the financing that you need at the rate you desire. So what are your options? You need to find a broker who will get you the needed financing through alternative means, such as trust funds or private funds, at the best rate you qualify for.
Shopping For a Mortgage Broker – So the banks said no… this doesn’t mean you’re out of luck. It’s time to find a broker that will get you the necessary financing to fund you purchase/refinance. Many clients approach mortgage brokers with the mentality of shopping for a mortgage amongst multiple brokers. This is where your “shopping” mentality can work against you. The reason this common strategy doesn’t often work is because many brokers deal with lenders that overlap with one another. In fact, many brokers have virtually similar access to pretty much the same lenders (with some exceptions). Now imagine if you are shopping for a mortgage but dealing with multiple brokers who are all trying to get you the best that you can get. It is highly likely that the more brokers you are dealing with, the higher the chances of any given lender receiving duplicates of your application from two difference brokers. This is the point in time where you’re strategy will begin to fail you. In fact, when a lender sees that you are dealing with more than one broker, it’s perceived as a form of desperation in addition to being a waste of time (lenders would have wasted their time reviewing both applications, for the same mortgage request). In addition, if any one of the multiple broker you are dealing with had made a slight error in your application and there is a discrepancy between any two of the applications submitted, you are viewed as falsifying information to obtain the mortgage financing. You can probably see that although this “shopping” strategy is useful in many other circumstances, it is one that should be tucked away when dealing with a mortgage broker. Having said that, it is important to do your research and find a mortgage broker that you can invest your time/trust in. It is highly advisable to review the mortgage broker’s reputation, experience and client testimonials to gain a better understanding of the broker to determine if they’re right for you. Remember, it’s not about diversifying your application between several mortgage brokers, but it’s more important to find that one reliable broker you can trust! After all, the mortgage broker you choose is a certified industry professional that will go the distance to shop the best mortgage for you given your unique financial status. On average, a mortgage broker often works in harmony with over a dozen lenders who are competing for your business.
To tie everything together and to better understand the role of a Mortgage Broker, I will use the following analogy (loosely):
In a sense a mortgage broker is kind of like a lawyer. They are both responsible for your case, they are both interested in what’s best for you, and most importantly are fighting for your cause. In the case of the lawyer, there is usually one lawyer/firm that deals with a specific client or case. No lawyer/firm would deal with a client who is dealing with multiple firms because it’s not only counterproductive, but a waste of time for all parties involves. This is no different when it comes to mortgage brokers.
It’s a broker’s passion to find you the financing you need, but no broker (or lender) wants to deal with a client who shows the potential of wasting their time. In the eyes of a lender, the more inquiries you make, the less likely you are to take his or her services. With that being said, keep in mind that the broker you choose most likely has a very close relationship with the lenders he/she deals with, so trust your broker to make informed and beneficial choices on your behalf.
In a nutshell, it’s okay to shop for a mortgage when you are considered an A client and are shopping amongst individual banks. However, if the bank isn’t willing to finance your mortgage, pick a trustworthy broker and stick with them! Trust them to find you the best rate and best terms available to you and don’t come off as a ‘broker shopper’ or the lenders may be less inclined to take you as a serious applicant.