How to get the best deal on a mortgage
As
the old saying goes, it is always important to “start off on the right
foot” and this is especially true with buying a home. The very first
step in buying a home is deciding how you are going to pay for it and
what you can afford. There are so many different loans out there, it can
seem overwhelming at first and we are here to help clear the smoke.
Where is the best place to get a loan?
There
are several different options for where to go such as: home builder or
real estate agency lender, bank, thrift, internet lender, mortgage
broker or mortgage bank and it is easy to get confused with the
differences. We will break down the most commonly used options for
obtaining a loan.
1. Bank Loan Officer: works at a bank or credit union and works to sell and process mortgages originated by their lending institution. They often have several loan options to choose from, FHA and conventional be
2. Mortgage Bank: a
direct lender, meaning the bank employees (and only the bank employees)
review your application and they make the decision to lend or not lend
you money and will usually then sell your loan on the secondary market
(this is a whole other topic in and of itself). These banks are
regulated by state and federal agencies and are usually strongly tied
within the communities they are located. With a mortgage bank, you deal
directly with the source of your loan. However, mortgage bankers only
offer their own programs which can prove troublesome for many buyers.
3. Mortgage Brokers: a professional who brings together lenders and borrowers and they work to find the best fit for a borrower’s needs. The
better deal they achieve for the lender, the more they are paid. If you
choose this route, tell the broker the interest rate you want and they
will shop around to find the best terms. A skilled broker will know what
lenders are offering discounts and deals, but remember they don’t work
for free and often charge a fee between 1%-2% of the total mortgage and
sometimes a portion of this falls on the borrower and not just the
lender.
Once I decide on where to get my loan, then what?
Finding
out what you can afford is often determined by getting pre-qualified or
pre-approved. There is a difference between the two: a pre-qualification is what the lender thinks you will be able to borrow based on income and credit profile, while a pre-approval requires
filling out a full loan application which is typically reviewed by an
automated underwriting system. We recommend getting a pre-approval
before beginning to search for your new home.
What should I expect from my lender?
Your
lender should be able to give you a break down of all your loan options
along with feedback on how to improve your credit profile if necessary.
Don’t be afraid to walk into a lender with bad credit, it is their job
to help guide you & help get to where you need to be in order to get
approved for the loan you want. A lender will be able to go over what
fees to expect and many times they are able to provide you with a
Good-Faith-Estimate (GFE) for your specific purchase. They should walk
through each step with you, keep you informed and continue to move
things forward throughout the process.
What will my lender expect from me?
No
beating around the bush, the more able you are to give your lender what
they ask of you, the easier and smoother the entire process will be.
Lenders will usually require tax returns, W2s, bank statements, employer
names and addresses, length of employment (2 years is preferred) and
landlord information if applicable. The most important advice it to be
available because once the process begins you do not want to be the
reason anything is held up, especially since your deposit for your new
home is on the line!
What else?
Here are a list of a few more helpful tips we think are worth mentioning:
- Get a recommendation: Your Realtor should be able to recommend at lease 3 different lenders and we recommend calling and comparing results.
- Check your credit before the lender does: Bringing your personal copies with you allows the lender to get a good idea of where you stand and can give you a good estimate on your numbers until you decide on which lender to go with. Also, requesting your own credit does not negatively affect your scores if its pulled form an outside course. We recommend Credit Karma or FreeCreditReport.com if you do not wish to pay for the actual score. There are 3 credit bureaus which provide 3 different scored and lenders typically qualify based on the middle score. To obtain the scores from these sources, there is a small additional fee.
- Watch for e-scams: Online deals might look pretty but there are sharks in those waters so don’t get suckered.
- When possible, stay local: No-one knows you like those closest to you, lenders are no different. Local lenders know their surroundings best, they know the market and the ins and outs of the homes on their home turf. Usually, out of town lenders don't understand local classifications and terms used by appraisers or agents and this can seriously slow down the process while they are trying to understand just what is happening.
