5 Ways Junk Mail Pre-approvals Take Advantage of Consumers

Unraveling Junk Mail Pre-approvals: 5 Ways They Exploit Consumers

Transcript

Ryan Hillard: Are you receiving junk mail saying you’ve been pre-approved or pre-selected for a mortgage loan that maybe sounds too good to be true? If you are, you’re going to want to watch this because I’m going to go through five different reasons why the letter that we received in the mail is not good for most consumers.

Ryan Hillard: I’m Ryan Hillard with Ford Mortgage Group, and this is a letter that we got in the mail the other day. And it says, “Congratulations, you’ve been pre-approved for a loan amount up to $566,950,” which sounds great, at an interest rate of 2.75%. Now you really have my attention. As I first look at it, like most people would, you think that that sounds like a pretty attractive offer. If you’re out there thinking about purchasing a home, maybe you’re going to want to pursue this a little bit more. 

The Letter is Meant for an FHA Loan so They Can Appeal to More People Even Though it’s Not the Best Program Based on the Terms Provided

Ryan Hillard: The first thing that I see when I look at this is that it’s for an FHA loan. Not that there’s anything wrong with FHA loans. We do a lot of them, but the problem with it is that it’s probably going to appeal to more people, and that’s why they put this out there rather than a conventional loan. With having this maybe more appealing, that they might be able to cast a little bit wider net. There’s a few reasons why they might do that. One of them is the debt-to-income ratio can sometimes go higher, although they cap that in this letter. Other reasons are that they can typically offer a better interest rate. FHA loans, with everything else being equal, we’ll almost always have a better rate than a conventional loan. This is an instance where. rate doesn’t always mean that it’s the best program for you, and you should explore other things rather than only the interest rate.

Rate Doesn’t Always Mean it’s the Best Program for Your Situation.

Ryan Hillard: As we get to the interest rate, we’re looking at this, and again, it was a rate of 2.75%, which, nothing wrong with that. I’ll take it. The problem that I have with this is that when we go out, and I take a look at where rates actually are or what rates we have available for an FHA loan with everything else equal in this letter, our rates aren’t in the upper twos, our rates are in the lower twos. And you might be saying, well, maybe there’s a difference in time between when they sent this letter and when you’re looking at rates and maybe rates have moved because they do change on a daily basis. And you’re right. They do change on a daily basis.

Ryan Hillard: The thing is that there has been a little bit of time since they sent this letter. And when I’m looking at rates today, but in that time, rates have moved up. You would think that the rates would be maybe a little bit more close, but their rate and the higher twos are rates in the lower twos, everything else equal shows that they’re already inflating this rate, which they’re going to be making more money on and charging a rate to the customer that doesn’t have the customer’s best interest in mind. 

The Rate in the Letter is Worse Than Current Market Rates

Ryan Hillard: When we talk about not having the customer’s best interest in mind, we’re going to my third point, which is in order to get the rate that they’re offering. There is a cost. When you go to the fine print, it says that it is a charge of 0.25 points. That means 0.25% of the loan amount. And so when you do the math, it ends up being $1,417. In order to obtain what we’ve determined is an already worse rate, they’re still charging you an extra $1,400 in order to get that. That doesn’t sound like a good deal to me, and I know that it’s not a good deal for you or for most consumers. There’s no reason why you need to pay more to get less. 

The Credit Score That the Letter Uses to Qualify Consumers is at 832, Which a Majority of Consumers Do Not Have

Ryan Hillard: Moving ahead to the fourth point is credit. Going through the fine print again on this, and that’s where everything is, you’re going to want to always read the details of these types of things. The credit score that they’re using is a score of 832. Now, I don’t need to ask anybody to raise their hand to show me or tell me who has a 832 credit score. If you do, and if you want to tell me that you do, you can leave it in the comments below. You can private message me if you don’t want that public. I’d be curious to know who has an 832 credit score and I’m talking about a FICO score, and there’s a difference between a FICO score and something that you might receive from Credit Karma or if you’re looking at the credit score that your banker or credit card gives you where we as mortgage lenders will always use the FICO scoring model and in doing so it is extremely rare to see an 832 credit score where I’ve not seen it once in the entire time I’ve been doing this. So they’re using a score that is an unrealistic level, and that’s one of the ways that they get away with re-trading on an offer like this, again, not having your best interest in mind. 

The Mortgage Insurance of this FHA Loan is More Than You Need to Pay

Ryan Hillard: Finally, that brings us to our fifth point, which is mortgage insurance. And you’re like, well, wait a minute, you didn’t say anything about mortgage insurance. When we look at an FHA loan, we know that there’s going to be mortgage insurance, especially because they say that this offer was written with 5% down. In this scenario, if we’re putting 5% down, we are always going to have mortgage insurance. And that’s just the way it is. If we go back to taking a look at our credit score of 832, what we would want to do is say, well, what would our mortgage insurance look like with a conventional loan? Is that better or worse for us than a FHA loan? And I can tell you without having to do anything, without having to look at the math or any of that, that you’re going to have a lower mortgage insurance cost with a conventional loan than what you will with an FHA loan.

Ryan Hillard: When we go through all of these things when we look at the program, and we look at the rate when we know that they’re charging you extra money to obtain that rate when they’re using an unrealistic credit score, and we look at the mortgage insurance that they’re going to be charging you. It’s not worth the paper that it’s written on. If you have this, if you are getting these types of offers in the mail, I would love for you to send it into me because what I will do that they are not going to do is show you with specific figures specific to your situation, which program is going to be the best for you.

Ryan Hillard: Is an FHA loan going to be best for you, or is it a conventional loan? And rather than you calling in and them saying, yep, great, we want you to do this loan because frankly, they’re. It’s not their decision. It’s not my decision. It’s your decision. And all I want to do is empower you to make the best decision for yourself.

Ryan Hillard: I’m Ryan Hiller with the Ford Mortgage Group, and look forward to helping you.