It’s totally OK.
We’ve ALL been there. So don’t feel bad. It’s really not your fault.
There’s too much confusing info out there. On top of that, there’s just WAY TOO MUCH info, period.
Look, no one said buying your first home is going to be easy. But it can be a lot less stressful if you have the information I’m about to share with you.
First, let me ask you this:
I’m sure at this point you’ve seen a gazillion bank ads parading their Rates. Those ads are like kitchen flies in the middle of July – they’re impossible to avoid.
Something like: 4.513% APR
Let me start with some unconventional wisdom:
First rule of shopping for a mortgage loan: Ignore the Rates
Rates are a scam!
Ok. Maybe this was a bit strong, they’re not an actual scam, but the way the banks and most lenders use them – is slippery to say the least…
Let me explain.
The truth is – rates are absolutely, positively and categorically … Irrelevant (compared to that wooly mammoth in the back of the room)
Wait, what?
Why would banks splatter those numbers all over the place then – like it’s some home-buying gospel?
I’m going to let you in on this, but I must warn you ahead of time – you’re probably NOT going to like it. (Please proceed at your own risk.)
Still here?
Ok. Here it is…
Think of it this way.
How many times have you stopped at a gas station because you saw their price was 5 cents cheaper than the one you just drove past? ( …don’t worry, I’m not judging, I used to fall for it all the time… …ok I still do, I’m only human after all)
But something I learned a while ago, made me look at things a bit differently.
An old friend of mine (Earl), who used to be a manager at Exxon enlightened me one day…
I was really surprised to find out that gas stations only make on average of around 7-10 cents on every gallon of fuel! Have you noticed how sometimes there will be a station that’s like 10 cents lower than 6 stations you’ve just passed?
As a personal observation, those discounts are usually the highest on weekends. (Check it out next time you go out on Saturday or Sunday…)
Why would a gas station break even or even appear to lose money on gas every weekend?
Simple. Because they don’t.
Those 5 or even 10 cent fuel discounts are designed for one and only ONE purpose. To have you come inside the shop. (as about 90% of people will)
Inside the shop is where the real cash is made.
Average markup on these items will start to clear up the picture a bit:
Bottled water 50-60%
Cigarettes 34.4%
Beer 12.2%
Food Service 12.1%
You get the idea…
Sixty percent on bottled water and thirty four percent profit on a pack of smokes? That’s some healthy profits if you ask me!
Bank’s Bottled Water and Cigarettes…
This is eerily similar to what banks are doing with home loans.
Their sneaky plan is to get you through the door with their LOW interest rate bait. Where they make the real killing – is on the back end. Those back end costs are the Banks’ bottled water and cigarettes.
Let’s take a look at what they are:
• Credit report -$20-$40
• Application fee – $100-$350
• Processing fee – $300-$900
• Underwriting fee – $300-$900
• Lock-in fee – $100-$300
• Loan origination fee – 0-1% of the loan amount
• Tax service – $50
• Wire transfer fees – $25
• etc, etc… (these are just a small sample, the list is far more extensive)
So next time you see an attractive Rate sign at the Bank Of America – you’ll probably chuckle to yourself, because now you’re more empowered. Now you KNOW, Bank Of America is not going to make extra $5,000 on your ignorance – because you just fell for their window trick. ( I’m using BOA just as an example, the same goes for pretty much ANY bank in town… they all operate in a similar fashion)
What am I supposed to do then?
Glad you asked! It’s the most common question we come across.
If you don’t want to get taken advantage by unscrupulous banks, your best option is to shop with lenders who are fully transparent about their fees upfront.
And yes they’re still in existence!
In fact this is one of our strengths – we help first time buyers to get matched with those lenders. We take pride in the fact that we help you sleep soundly at night because you didn’t overpay for your new home. Let us do the hard work for you.
Thomas is a personal finance writer from Louisville, KY.