With so many lenders in the market competing to get your business, it’s easy to find one.
The harder part is choosing one that will follow through on its promises, close the deal on time and provide the service you deserve.
First, realize that there are banks, mortgage companies, loan officers and loan brokers and it’s wise to know the difference. Banks are financial institutions offering all kind of services. Mortgage companies offer only home loans. Typically, once a loan is closed, they sell it to investors so they can have more money to lend to other homebuyers. Some banks do the same.
Loan officers work for banks and are able to offer only the products their banks offer. Brokers work for themselves and have relationships with several lenders, so they can scout the market for the best deal. However, they charge a commission — generally 1 percent of the loan amount — so you could be paying more at the settlement table.
One of the choices you’ll also want to consider is your builder’s affiliated lender. Many builders these days have relationships with mortgage makers, if not directly, then indirectly with ones they know can get the job done. Some builders even have their own in-house lending operations. These affiliates may charge a bit more, but they usually have better control of the process.
There’s nothing wrong with any of these possibilities; each has its strengths. Moreover, there’s not much difference these days in any of the rates they charge. So, here’s how to find a lender that works for you:
Start by asking friends and family members who have gone before you for their recommendations. They’ll be glad to offer their opinions on the lenders they did or did not choose. Also talk to a trusted realty professional. Real estate agents can offer recommendations on lenders that offer top-notch service.
Here’s what to ask family, friends and professionals you are working with:
- Did the lender close on time and at the same rate and terms as originally quoted?
- Did documents you were asked to supply go missing?
- Were there any last minute hitches? If so, what were they?
Once you have identified two or three choices, you’ll want to interview the lenders. You are considering “hiring” one, so be thorough. And remember, you don’t have to actually fill out an application to ask these questions:
- Will the lender provide status reports telling you where your application stands at any given time? For instance, you’ll want to know if the information you were asked to provide has been received and sent to the proper party.
- Will there be a single point of contact and who will that be? You’ll want someone who you can reach out to for help for support anytime during the process. There’s nothing worse than having to chase down an unresponsive lender.
- What are your product options? Here you’ll want someone who can explain the different kinds of loans and loan terms available. If you don’t understand something, say so; there’s no dumb question. And if something isn’t explained to your satisfaction, find someone who can explain things in a way you understand.
- Can you be pre-approved; that is, will your lender clear you in advance for a mortgage up to a certain amount? Based on verification of the information you supply — employment, bank accounts and so on — most lenders can tell you that you are okay for a loan up to “x” amount, the only caveat being an appraisal to support the loan amount. “Even before an offer is accepted, everyone in a transaction depends on the buyer’s pre-approval letter,” says Chris Carter of the Paramount Residential Mortgage Group in Naples, Fla.
- Will you have to physically provide the required documents — two years’ worth of tax returns, for example, or pay stubs for the last few months — or can the lender retrieve them electronically once you sign the proper release forms?
- Is the lender local or is the underwriting department located somewhere in the hinterlands. “You wouldn’t use a Realtor in Iowa to buy a condo in California,” says Brian Tran of Vanguard Properties in San Francisco. “I’ve seen countless deals fall apart because the buyer didn’t use a local lender who knows the local market.”
- What will be your total cost be for the loans that fit your needs the best?
- Will the lender keep the loan or sell it on the secondary market? Either MO is okay, but it’s nice to know ahead of time that the lender won’t be the outfit that administers your loan; that is, collect the payments and pay the property taxes and insurance on your behalf.
- Will you be required to pay one-twelfth of your annual tax and insurance bills each month along with principal and interest or can you pay those on your own once a year? Allowing the lender to escrow the money is often your best option because that way you won’t be hit by large payments of thousands of dollars. But some folks would rather keep their money until the bitter end.
- What complaints have been lodged against them? Check with the Better Business Bureau in your area and the Consumer Financial Protection Bureau — http://www.consumerfinance.gov/ — a federal agency that maintains a database of complaints and concerns filed against lenders.
Lew Sichelman is a nationally syndicated housing and real estate columnist. He has covered the real estate beat for more than 40 years.