The process of choosing a mortgage

Since our offer was accepted, we went through a bit of a back and forth with our mortgage. Do we pick mortgage 1 or mortgage 2? One is less expensive, the other probably offers better service. What does "service" mean in the context of a home mortgage? If the lender isn't able to get the loan completed in time, then we don't get the house. Potentially, we lose our earnest money too. If the lender gets it all done in time, but just barely, then everything's ok, but we're under a lot of stress. If the lender gets it all done in plenty of time, then everything's great.

So, we want things to go great. We want a lender that gives good service, is hassle-free, and gives us the best rate on a mortgage. Is that too much to ask? (There's more, read on!)

To be honest, we were incredibly lucky with finding a house so quickly last week. There were only two offers on the house we got, whereas a house that we looked at a few blocks away on a busy street (and not as nice, if I say so myself) got four offers. I'd like to think that our preinspection had something to do with it, and scared a few people away. Of course, perhaps the fact that the sellers and the seller's agent were on the road the whole week and practically unreachable turned off a few people as well. Or perhaps it was the $20k difference in list price (our was listed higher). Of course, with four offers, I doubt that the other house sold for much less than ours.

But that's all beside the point. What's happened since?

The context: We had already received quotes for mortgages from several lenders, including my employer's preferred lender (Lender A), a mortgage broker referred to us by our real estate agent (Lender B), and a third lender we found via Costco and LendingTree (Lender C). There were other lenders as well, but our relationships with them never advanced beyond the first phone call, so they shall un-lettered. Through this whole discussion, I'm going to keep it simple and talk about our back-and-forth on the first mortgage, and not about the second mortgage, closing costs, etc.

Day POA+1¹: At this point, our default lender is Lender A. We had our credit approval letter from them, and had a rate quote (not locked, since we thought that we'd most likely be getting a house much later) for 5.125% for a 5-year ARM. We're more interested in 7-year ARMs. I send an email to Lender A and ask for their current rates. I get a response that the current rate for 5-year ARMs is 5.375%, 7-year ARMs is 5.75%, and 30-year fixed is 5.875%. I'm a little surprised at the changes².

We decide it's time to get in touch with other lenders and check their current rates. I call Lender B, and we talk on the phone for awhile, he quotes us some rates that beat Lender A. Interestingly, he finds that he can give us a 30-year fixed mortgage for the same interest rate as a 7-year ARM, assuming we don't buy down the interest rate. Having a 30-year fixed isn't something that we'd thought about before, but it sounds appealing, especially if we don't have to pay a higher interest rate for it!

As I mentioned earlier, we found Lender C via a Costco partnership with LendingTree. LendingTree is basically a referral service. You give them the basics of your loan application information, and they choose three lenders who might give you a good deal, and the lenders give you quotes. Lender C had given us the best quote from all our LendingTree offers. Now, on the phone, their rates had gone up like everyone else's, but they still beat everyone else handily. Their rate for a 30-year fixed was 5.5% (compare that to Lender A's 7-year ARM!). Their lender fees are slightly higher, but we would break even in about a year. This sounds like a great deal.

Meanwhile, our real estate agent is faxing our contract offer to Lender A and asking them to appraise the property as soon as possible.

Day POA+2:We've decided to switch to lender C. We've looked around, they have good ratings from previous customers on LendingTree. Their Better Business Bureau ratings are reasonable (only 2 complaints in the last 3 years, both resolved according to the BBB). We're feeling pretty comfortable. We call our real estate agent to let him know. We call Lender C to formally apply for the loan, she sets up a phone appointment for the next afternoon. We call lender's A and B to let them know. Lender B is disappointed, and warns us about a trade-off between lower rates and better customer service. Lender A isn't in the office, and we leave her a voicemail, asking her to not appraise the property.

Day POA+3: Our real estate agent calls Lender C, faxes her the purchase contract and property details. We talk to Lender C and giver her our application over the phone. She's going to email us a loan application to sign and fax back the next morning.

Day POA+4: No forms from Lender C this morning. If we understand correctly, we're supposed to have applied for a loan by today in order to meet the conditions of the financial contingency in our offer. We're nervous now and thinking about what Lender B said about customer service and getting things finished on time. We call Lender C mid-morning (note that she's in a different time zone, so she's already in her afternoon by the time we're in our mid-morning) and she says she's preparing the documents, and will get them to us in a few minutes.

Half an hour later, no loan application materials yet. We're even more stressed now. Is this a sign of things to come? What if we lose the house because a lender in another state is overworked? If we don't make a switch today, will it be too late to switch later?

We call Lender B, asking him about his current rates. They've gone up even further. Financially, it's looking like it would be tough to switch at this point.

An hour later, we get the official loan application from Lender C. There are a few numbers on the application that don't match the good faith estimate, as well as a few other mistakes in addresses, etc. We're not feeling great at this point, but resigned to push on through this process and spend the extra energy calling Lender C every day if we have to to make sure things get done right and on time over the next 30 days.

We're going over to the fax machine to fax our loan application, financial documentation, student transcripts, and other papers over to Lender C when we get a call from Lender A. Lender A has received our voice mail from two days ago, and wants to have a chance to match or beat Lender C's rates. We say sure, tell her we're getting 5.5% for a 30-year fixed. She says she'll talk to her manager and call us back within an hour. We hold off on faxing our application to Lender C.

We wait. It's hard to wait. Especially when you don't have anything else to do.

In an hour, Lender A calls us back, and says she can offer us 5.375% for a 30-year fixed, and gives us a slightly better rate on the second mortgage as well. The lender fees are lower too. Plus (have I mentioned this yet? I don't think so), to trump it all, since they are our employer's preferred lender, they already have documentation about my income and we have a good credit rating, they don't need any further bank statements, W-2s or explanation of why, as a student, I wasn't making enough money to afford the house that, as a full-time employee, I can afford. She's already received our purchase contract, on day POA+1, so we're practically done. Wow, sounds great.

We call our real estate agent. He sounds happy to switch away from Lender C. We call Lender C. She doesn't sound so happy that we're switching away, but is polite. She's surprised that someone else beat their rate from POA+1 today, on POA+4 with all the market changes.

Lender A is going to get the house appraised and a loan processor will call us in 24-48 hours if there's a need for additional documentation for our second mortgage. We had to go through a relatively short period of stress, but it looks like we're now getting a lender that has a pretty good reputation, is certainly hassle-free in terms of required documentation, and is giving us the best rate. All we have to do now is find home owner's insurance...

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Let's say that POA stands for Post-Offer-Acceptance, so POA+1 is the day after our offer was accepted

I'm not in the habit of tracking changes in the mortgage market. Maybe you are. Maybe I should be.