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Is the Costco Mortgage Program Worth Exploring?

Bob Musinski

Costco is known for selling jumbo packs of toilet paper, rotisserie chicken and even 7-pound tubs of Nutella from its warehouse-style stores across the nation. But you might not know that the members-only wholesale chain offers something even bigger: mortgages.

The Costco Mortgage Program could help some members buy or refinance a home through First Choice Loan Services Inc. Here's a look at how the program works and how it stacks up to other similar programs.

[Read: Best Mortgage Lenders.]

What Is the Mortgage Program for Costco Members?

When you join Costco, you can access the Costco Mortgage Program.

There are no surprises with Mortgage Program lender fees, which are low. Lender origination fees are capped at $350 for Executive members and $650 for other members.

The program was designed to add value to the Costco membership, explains Guy Cecala, CEO and publisher of Inside Mortgage Finance Publications Inc.

"So you get not only discounts when you shop for a variety of products at Costco stores, (but) you also have access to lower-cost financial products," he says.

But Costco is not a lender and does not have a direct role in the mortgage process, says John Alexander, CEO and president of Affinity Partnerships. That firm runs the program under the direction of First Choice Loan Services.

The Mortgage Program makes conventional, jumbo, Federal Housing Administration and Veterans Affairs loans available to first-time buyers, buyers seeking second homes, and investors. Since 2011, the program has funded more than 132,000 loans worth over $30 billion, according to the Costco website.

[Read: Best Mortgage Refinance Lenders.]

How Does the Costco Mortgage Program Work?

Once you hit a button on the Costco website that indicates you want to start, you will be taken to another website run by First Choice and Affinity. You'll be asked to enter basic information, such as your name, address, estimated mortgage loan amount, estimated credit score and member number.

With that information, the website then provides you with many interest rate and term options. For example, a recent search for an $80,000 mortgage loan produced six options for 30-year fixed-rate loans and one for a 15-year fixed-rate loan.

Your offers could come from First Choice, Consumer Direct Mortgage, Mutual of Omaha Mortgage, NBKC Bank, Strong Home Mortgage or J.G. Wentworth Home Lending.

But the number of lenders in the program fluctuates. There could be as many as nine or as few as seven, Alexander says.

You can select up to four lenders to receive your personal information. Once you confirm that they can contact you, they will call to answer your questions.

The Costco program is geared toward ensuring that members get mortgages that meet their needs, Alexander says. Every month, First Choice Loan Services uses surveys to measure how well lenders are meeting service expectations, he says.

Cecala adds that the program is somewhat comparable to LendingTree. "For LendingTree, you provide your information, and they basically shop it around to 100 or so lenders who want to bid for your loan on their platform," he says.

The Mortgage Program for Costco members is different from LendingTree because borrowers choose loan products and lenders before sharing their information.

What Are Potential Advantages of the Costco Mortgage Program?

One of the ways the program aims to cut costs is to cap lender fees linked to the loan transaction.

Without the program's cap, borrowers could pay at least $1,500 in fees on a $300,000 loan. Nonmembers can use the Costco Mortgage Program as well, but they won't benefit from the lender fee cap.

Usually, consumers focus more on interest rates than fees, Cecala says. "I don't think (the program) is going to be able to offer significantly lower interest rates, and that's primarily what people shop for in a loan," he says.

"Most people, even if they know they can get better service at one lender or another, still pick a lender on perceived costs," Cecala adds. "Everybody wants the best and lowest rate."

With so many ways to get a mortgage and so many types of loans, shopping around is more important than ever.

"If you're a Costco customer, you have to decide if this program is better than just calling up Quicken or going to a Wells Fargo or Bank of America office," Cecala says.



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