Get smart about internet lenders and credit reports

The internet is an incredible resource for information and research, but consumers should exercise caution when dealing with internet-based mortgage lenders. Also, they should not depend solely upon online services that provide credit reports.

In many cases, unprepared consumers are disappointed when these online lenders can’t live up to their advertised rates and are surprised to find that the credit scores their credit report service reflected are not accurate. While the internet is a great way to quickly find information, it is not a good place to find a mortgage lender or get a complete view of your true credit profile.

Every credit-based industry uses a different method of credit scoring. If a consumer was to go out today and have their credit checked at a car dealership, a credit card company, a cellphone provider, a mortgage lender, and an online credit report service, every report would show different FICO scores. A credit card company will most likely provide this consumer a credit report with scores significantly higher than the scores on the car dealership’s report. Why? The higher the risk (money the company could lose), the lower the score.

This consumer would also find that the mortgage company’s credit report will most likely have the lowest scores, since the scoring system used is much more strict. While an auto dealer is financing loans for $10,000-$50,000, mortgage lenders are working with loans of $100,000 to millions. It makes sense that a more careful approach is taken when there is more money at stake. The primary concern of any lender is whether or not a borrower will default on their loan and create a loss for the company.

If you are in the market for a mortgage and are watching your credit report online, you would be well advised to consult a mortgage expert instead to get a more user-specific view of your credit profile. While one industry’s lender may disqualify an applicant based on unpaid medical bills, or outstanding collection accounts, another lender may not even count them.

Another internet-based service that is gaining in popularity but not necessarily quality is online mortgage lenders. Why would a consumer even consider obtaining a loan the size of a mortgage from a faceless, impersonal website? Often, these internet lenders advertise unbelievably low interest rates. They do so to hook you in. No lender can provide a consumer an accurate interest rate before reviewing that consumer’s financial information. Their intent is to entice unprepared consumers into calling in and then getting so wrapped up in the application process that they will be less likely to back out when that rate suddenly shoots up later on.

I recently met with a client who was comparing my mortgage offer with one from an online lender. The “loan officer” this client talked to assured them that they could get a VA cash-out refinance for 4.375 percent versus my offer of 4.5 percent. Curious, I googled the lender, looked at the website, and then called their toll-free number. Within two minutes, I found out that this online lender didn’t even do VA loans! The offer they had provided this client turned out to be worthless.

The Good Faith Estimate this lender had produced was also extremely misleading. They had conveniently left some of the mandatory fees off the paperwork in order to make their offer look more appealing. An interest rate difference of 0.125 percent, in this case, amounted to only $18 a month, but yet the internet lender’s monthly payment was almost $200 less than mine! Appropriately and honestly done, our Good Faith Estimates would have been nearly identical. The big difference here is customer service.

When searching for a mortgage, the internet is a good place to begin your research, but it does not compare to consulting a local mortgage consultant. A mortgage is arguably the most significant financial undertaking a person or family can undertake. Why leave such an important process up to a voice on the phone from another state or country that you were assigned to in a call center? One might say that a mortgage is like a financial version of a marriage … would you get married to a stranger through a website?

Chad Moore is vice president of Business Development and VA Loan Specialist at The Mortgage Market of Delaware. Moore is also a veteran, having served in the U.S. Navy. The Mortgage Market of Delaware is a Certified Military Housing Specialist. Moore's phone number is 302-236-9397. For more information go to www.TheMortgageMarketofDelaware.com.