Costco, the well-known mega wholesaler that runs a chain of membership warehouses internationally, is rolling out it’s so-called “Mortgage Services” to all customers after a year of initial testing.
The company already offers all types of insurance, a co-branded credit card, RV and boat loans, beer, wine, electronics, not to mention gigantic tubs of mayonnaise.
So what’s the deal here? Why is Costco getting into mortgage? Could it really be that profitable?
Costco is Marketing Mortgages
Well, what Costco’s really doing is marketing a mortgage product on behalf of another company, namely, First Choice Bank.
They don’t get paid for the loans that close or receive any sort of loan origination fee.
Costco is simply partnering with First Choice Bank, who is leveraging the warehouse chain’s loyal and enormous customer base.
That means we should be more concerned about First Choice Bank, which is the company that’s really doing the lending, or at least funding/organizing it all.
First Choice Bank, out of Lawrenceville, New Jersey, is a baby in terms of years in the banking industry.
In fact, they just celebrated their five-year anniversary in March. And they only have five branches, all of which are in the Garden State.
But they do have a wholly owned subsidiary called, “First Choice Loan Services Inc.,” which is a direct lender with loan production offices in Arizona, Colorado, Florida, Maryland, New Jersey, Pennsylvania, and Texas.
And Costco apparently oversees the company, holding them to rigorous standards to ensure they protect their good name and their own customers.
Costco Doesn’t Do Jumbo Mortgages
No mention of jumbo loans here folks, despite Costco specializing in all things jumbo.
Of course, the offerings of the program may be expanded as more approved lenders get on board.
First Choice Bank actually oversees a group of preferred lenders, including national depository banks and mortgage bankers, including CapWest Mortgage, which I’ve already reviewed.
Other participants in the Costco Mortgage program include:
- WestStar Mortgage Inc.
- Sterling Bank
- United Community Mortgage
- Bank of Internet USA
- Real Estate Mortgage Network
- New York Loan Exchange
- First Century Bank
- Wyndham Capital Mortgage
- Vanguard Mortgage
Costco Mortgage Works Like Zillow Mortgage Marketplace
In a way, the Costco Mortgage program works kind of like the Zillow Mortgage Marketplace.
Costco members enter in their personal details, including property and loan information, and are then presented with a number of mortgage rate quotes.
But borrower information will only be shared with participating lenders if you actually request a rate quote, which allows for some anonymity.
If you do happen to like one of the rate quotes, your lender fees will also be discounted because Costco caps them.
Costco Goldstar & Business members will pay less than $750 in lender fees, while Executive members will pay less than $600.
This compares to standard lender fees, which generally range from $1000-$2000.
So we know there are some savings there, but one thing stood out to me in the fine print that I didn’t love.
It notes that lenders are “held to very strict pricing and fee standards which limit their ability to negotiate a lower fee or rate.”
To me that tells customers they should just accept the rate they’re given because it’s already rock bottom.
But I always recommend negotiating your mortgage rate, no matter how good or low it may be.
All in all, it appears as if Costco is just another avenue to go down while shopping for a mortgage, which isn’t necessarily a bad thing. More options are always good.
You should also shop around beyond Costco to make sure you exhaust all options. This includes checking out online lenders, visiting a local bank or two, and speaking with a mortgage broker or three. Don’t cut corners!
Getting a mortgage is a big deal, and even a slight change in rate can mean thousands in savings or costs over the life of your loan.
Read more: What mortgage rate can I expect?