5 Things You Should Expect in a Mortgage?

My TiVo Home Screen today had the Bank of America paid advertisement for "5 things you should expect in a mortgage." I would not be doing my job if I didn't check it out, so here goes:

You can go online and apply for this mortgage with no application fee. From there you can get pre-qualified in minutes. After that, you pay no PMI (private mortgage insurance), you pay no closing fees and then they have a "best value guarantee." Finally they offer a "close on time" guarantee.

Let's break this down:

1) No application fee, but is there a processing fee, a credit report fee, an appraisal fee, a title fee?

2) Pre-qualified in minutes through their website, but is your application going to someone who understands that yes, a condo might actually be worth $2,000,000 where you live?

3) No PMI. Sounds nice, but let's just look at the news recently. It seems to me that the stock market just dropped everyone carrying "risky" loans on their heads. PMI is insurance the lender takes out when less than the traditional 20% of the purchase price is being but down up front. How does the lack of PMI affect the rate?

4) You pay no closing fees. Sounds great, but what about closing costs? There is an underwriting fee, a document recording fee, there are title fees, and then each bank has a closing attorney they have to employ. These are just a very few of the things that you need to close EVERY loan, at least here in Massachusetts. So who pays them? I promise you Bank of America is not paying those costs themselves. Take a look at your APR or your rate as well as your "Good Faith Estimate of Closing Costs" that each and every lender must provide by law to every borrower prior to closing.

5) You will get the best "value." Now, that's a little subjective, isn't it? What determines value? Who dictates which part of it causes the best "value" return. Nowhere do they say you get the best rate or the lowest closing costs. Simply put, there are a TON of holes in this.

6) Close on time guarantee. Well, that means that within their window to turn things around, they will close on time. An airline can schedule 3 1/2 hours for a 2 3/4 hour flight. If they land at 3:05 they got you there "early" right? Can they close the loan from application to payment in less than 30 days? Can they adjust on the fly if something comes up in your purchase and sale and has to be dealt with?

My experience with large, non-community banks, is you're in a lot of trouble when it comes time to getting a loan approved for "high-value" real estate markets. The loan processor in Indiana does not know what they're looking at when the appraisal is submitted and thinks that our real estate values are completely out of whack. Also, is your loan origination team going to be able to sit down with you (or your agent) in person to talk through the speed-bumps that come up in the process? Are they going to have an attorney who you have access to available to help settle any issues? Finally, with no PMI, are they going to be able to guarantee a competitive rate?

My advice: find a local lender. They can work for a major national company (Countrywide, Wells Fargo, etc...) but make sure the team you are dealing with knows your town well and can go to bat for you when the going gets tough. Also, make sure you find someone who will give you an honest answer when things start to go wrong. I've seen good lenders swoop in and save a deal with 24 hours notice, and I saw one truly impressive one close a loan that another bank had messed up with literally hours to spare before Christmas Eve.

Bank of America is fine for your checking account or your debit card, but let's leave lending to the few people out there who are still going strong and know how to do it.