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Home Buyers – You are leaving money on the table

Comparison shopping - money left on the table

Comparison shopping may not come naturally to all of us. Buying a home is probably the biggest investment you ever make in your life. You put your life savings into a place you call Home, a place where you build memories with your family, your kids – memories that you cherish for a lifetime. For that reason, you want your home to be the best. But best doesn’t necessarily have to come for the highest cost.

People spend months, sometimes years, looking for a home. It takes a lot of effort to find that perfect home that they fall in love with. But once they find it and their offer to buy it gets accepted, it’s natural for them to relax after such a tiring, often months-long, effort they put in to find it. They take a breather, thinking the process is pretty much over at that stage, and assume that the rest is just a mere formality. They go to a mortgage broker or a local bank who they have probably been referred to by their agent (or a friend, or a colleague) and get a mortgage that they can “afford”. It’s simple. As long as they can ‘afford’ it, people are content with it and move forward without asking a lot of questions. Brokers and banks love that because it makes their task a lot simpler and transaction a lot more profitable. This is right where you leave money on the table, and a lot of it: by not comparison shopping.

It’s apt to underscore a study published by Freddie Mac, a leading US Government Sponsored Enterprise operating in the secondary mortgage market, on “Why People are Leaving Money on the Table?”.  The study highlights Richard Thaler’s Nobel Prize winning work on seemingly irrational economic behaviors: “in general consumers search too little, get confused while evaluating complex alternatives, and are slow to switch from past choices, even if it costs them”.

The study from the US Consumer Financial Protection Bureau (CFPB) provided suggestive evidence that shopping may reduce the cost of consumers’ mortgages. Another study by the CFPB on “Does shopping for a mortgage make consumers better off?” leads to the same conclusion: That customers are indeed losing a lot by not doing their due diligence. 

The fact that so many agencies are publishing research articles is clear evidence of value that comparison shopping for mortgage provides.

Why are consumers not doing as good a job as they do shopping for other things?

Lack of awareness about comparison shopping is a key reason. There are so many products, each a little more complex than the other: 30 Year-Fixed, 15 Year-Fixed, 5/1 ARM, 7/1 ARM, 10/1 ARM, Reverse Mortgages, Home Equity Line of Credit, Refinances, Home Possible, Home Ready, FHA, 203K, and the list goes on. 

On top of that, all the jargon associated with each mortgage product just overwhelms people. To make matters worse, within each of these, there are nuances that make it even harder to understand. So, what do people do amidst all this confusion? 

The hard part is filling out a separate application form for each mortgage lender with lengthy details over and over again. And that's tedious. Click To Tweet

They tend to pick the first mortgage lender their real estate agent suggests. But a real estate agent may have an affiliated business arrangement with a lender, incentivizing them to sell what is financially more beneficial to them than to you.

Some others might take an extra step and contact a friend or a relative for suggestions and they might recommend you what they did. But each one’s situation and financial goals are very different. What is good for a friend or a colleague may not necessarily be the best for you. So you have to assess for yourself what’s best for you.

Even when you end up picking the right mortgage product, you might be offered an interest rate that’s higher than what your credit-worthiness and affordability would fetch you. One would think an easy solution to this is to reach out to multiple mortgage brokers/banks and see who’s offering the best rate to you. But those of you who have gone through the mortgage buying experience know the pain of getting one. 

The biggest problem is that applying for a mortgage, even in today’s world with so much technology around us, is not like buying an air ticket or booking a hotel room, where you have access to the best pricing at your finger-tips. Imagine, the biggest investment of your life, and shopping for it is one of the most cumbersome experiences. It requires a lot of paper-work to be submitted such as pay-stubs, income tax returns, bank statements, retirement account statements, credit reports. That’s still the easy part. The hard part is filling out a separate application form for each mortgage lender with lengthy details over and over again. And that’s tedious.

So what should one do?

This is where Stem Lending comes in. At Stem Lending, we operate differently, and in many ways:

Firstly, we spend a lot of time educating our customer about different types of mortgage options that are available to them. What makes it even more useful is that we work with each person closely to understand their situation and then discuss the pros and cons of each option available. We are not trying to sell you something that we ourselves don’t believe is the best for you.

Secondly, we are not like your local broker, or your bank. Independent mortgage brokers (who don’t work for a specific financial institution) often work with just a handful of mortgage lenders for incentives and operational ease. Similarly, when inquiring the relationship manager at your bank about getting a mortgage, you will be put in touch with a licensed agent who is also working for the same bank, and that bank acts as the lender in this transaction. The agent has no incentive to be transparent about what the rates offered by other banks or lenders are because the agent wants their bank to get your business.

We, at Stem Lending, treat every customer as a lifelong relationship: serve as your one stop shop for all your mortgage needs. We are not exclusive to any lender and work with dozens of wholesale lenders. We bring value to our customers by having every incentive to provide them with the lowest rates possible by comparison shopping across wholesale lenders on our platform. 

In other words, we ‘shop’ on your behalf, without the pain. By partnering with lenders that operate on a nationwide scale, we ensure that even after your mortgage is secured, you can always reach out to us for a renovation loan, a refinance, construction loan or an investment property mortgage and even reverse mortgages. You can trust us to help you shop top wholesale lenders for each.

The very reason we started Stem Lending is because we’ve felt the pain that many of you have probably already gone through, or are about to. Click here to give us a try. You won’t be disappointed.