Real Estate Resources
Choosing a Mortgage Lender
A mortgage lender is critical to the cost and success of your home purchase. For one thing, he or she holds the purse strings. For another, the lender's level of service can make the difference between a happy new homeowner and a disappointed would-be buyer who missed out on a home.
Beyond finding a good interest rate, you are relying on a lender to lock in your rate fast — if you want that 6 percent rate, your lender needs to jump on it because rates can change like the wind. You are also relying on the lender to close the loan on time; you could lose a house if there is a hang-up for some reason beyond your control. Many other fees are also determined by the lender, fees that can be negotiable if you know what to ask.
To shop for a lender, you need to do your homework:
Know your need.
Before you even pick up the phone or turn on the computer, figure out what type of mortgage you need (Conventional, FHA, VA, ARM). Not all lenders handle all loans. You can be more selective if you know what you're looking for.
Know the prevailing mortgage rates.
It's easy to compare rates online, and many sites allow you to see the rates from local lenders for various types of loans, but beware! You might need to enter your name and address to see rates.
Understand the players.
Study the types of lenders and their advantages and disadvantages for your situation. Some lend their own money (Direct Lenders), and others find the money for you (Mortgage Brokers).
Understand the fees.
Beyond the interest rates, there are closing fees and points, and occasionally commissions that you don't see. You will want to compare these for all the lenders on your list. They are broken out in a Good Faith Estimate which the lender is required to provide you.
As you can tell, you need to make this decision based on your individual requirements and budget. You'll also want to consider the lender's professionalism, and one time-tested way to do that is through referrals. Most people find their lender or broker through friends or real estate agents, or via customer reviews online. After all, you only have so much time. As one buyer put it, "If you figure someone you trust has done some shopping, it's easy to just get lazy and leverage their work."
Get pre-approved before you shop for a house.
You are free to shop around for a different lender after you select your dream house, but buyers usually end up with the first lender. Get your referrals before you head for the pre-approval.
Here are some sources for lenders:
Agents want to have the pre-approval in hand before they spend time finding a house. It ensures that you are a qualified buyer, which will help them when they present your offer to a seller. Often they've worked with certain lenders and can personally vouch for them. Good agents can usually refer you to several lenders, and you should ask the same questions you'd ask if you were finding the lender on your own. In case the relationship sounds too close for comfort, the Real Estate Settlement Procedures Act (RESPA) prevents agents from taking kickbacks or referral fees from service providers. But remember, the agent's incentive in finding you a good lender is to ensure the transaction closes on time without any glitches. That's in their best interest as well as yours.
Friends who have bought or refinanced a house recently make great referrers. Ask them if the lender described the different types of loans available in easily understood language; if the promised rate was locked in; and how similar closing costs were to the lender's Good Faith Estimate. If your friends were happy with the process, you probably will be too.
Mortgage brokerage.If you don't have time to find a lender yourself, a broker can do it for you. Sometimes you pay the broker upfront, but usually the bank pays. Of course, you pay in the end: It's just wrapped up in the interest rate.
Your bank or credit union.
If you let them hold your money, it's likely you'd trust them for a loan. The loan officer usually controls the loan (even if they resell it eventually) and has authority to make decisions independently in your interest. That can be nice when time is short.
Many states have a requirement that loan originators be licensed, a process that often includes testing, a criminal record check and a bad credit check for the prospective broker. Check on your state government Web site to see if the state requires licenses and has a list of brokers who are licensed.Need help with choosing a mortgage lender? Click here to contact us today