How To Choose A Lender

By Cory Shuett, 23 Jan 20:45

A lender is essential to successfully purchasing a home. A lender takes on the responsibility of controlling money. A good lender can mean the difference between a satisfied homeowner and an unhappy would-be buyer.

Since interest rates change quickly, you rely on a lender to find a good interest rate and lock in that rate swiftly. You also rely on him to close on the loan on time. A house can be lost if problems arise that are beyond your control. The lender determines many fees that can be negotiated if you know what to ask.

It helps to gather all of the required documents together before talking to lenders.

There are some things you should know when looking for a lender:

1. Know What You Need. Before you start searching, figure out what mortgage type you need. Not all lenders handle all loans. You can be more selective and save time if you know what you are looking for.

2. Know The Current Mortgage Rates. Many websites allow you to see the rates from other lenders for various loans. Be aware that many lenders are also paid advertisers, so you might see the entire picture. What you find will probably be a good starting point though, because lenders must be competitive to stay in business.

3. Know the types of lenders. Research the pros and cons of each type of lender unique to your situation. For example, some lend their own money, and others find money for you.

4. Know the fees. Other than interest rates, there are closing fees/points and commissions that may go unnoticed. You want to compare these for the lenders you consider.

You are going to make your decision based on your individual needs. You will also base it on the quality of the lender. One way to determine this is through referrals.

The choice will often begin with pre-approval. Be sure to get your referrals before you get the pre-approval, and get a pre-approval loan before you start shopping.

There are a few sources for lenders:

1. Agent referrals. Agents want the pre-approval in hand before they try to find a house to make sure that you are a qualified buyer. Good agents have a number of lenders they can refer you to. You should ask the same questions you would ask if you were finding the lender on your own.

2. Friend referrals. Friends who have bought or refinanced a home recently are great referrers. You will probably be satisfied with a lender your friend was satisfied with. Ask them if the lender explained the different types of loans available well, if he locked in the rate he promised and how similar the closing costs were to the lender's Good Faith Estimate.

3. Online sources. You can find many websites where you can get estimates from lending companies without having to talking to them. Others will have someone call you. Online quote sites/directories include: LendingTree.com, Refinance.net, HomeEquity.net, BestRate.net and Lowest Mortgage Rates 4U. There's no risk until you sign a contract. You can decide if you need in-person service.

4. Mortgage brokerage. A broker can find you a lender if you don't have time to do it yourself. Usually the bank pays the broker, but sometimes you pay upfront. Either way you pay in the end, because it's included in the interest rate. However, when you go through a mortgage broker, he or she can most likely get a lower rate than you can by yourself. This is called shopping wholesale. Only certified mortgage professionals can get wholesale rates.

5. Your bank or credit union. You have your money there, so you probably trust it. The loan officer usually controls the loan, even if it's eventually resold. The loan officer can make decisions on his own, which can save you time.

6. Parents or other family members. An accurately documented intra-family mortgage loan is as official as a loan from a bank. Interest is still tax-deductible, but you can keep the money in the family. CircleLending is a company that can help you make it official while keeping your family's interests in mind.

Compare at least three lenders before making a final decision. You'll want to compare rates, fees and points, but don' be afraid to ask more questions.

1. What are your loan programs? Do you offer VA loans (for example)?

2. What is the par rate for a 30-yr. fixed loan? (He should be able to answer this in snap.)

3. Could you estimate closing costs for my loan?

4. Can you estimate and explain your fees?

5. Can you explain an APR and what is it for this loan?

6. What is your income from this loan?

7. Would you get approval for my loan locally?

8. Here's my timeline. Are you sure you can get this done in time for closing?

9. Can I see a Good Faith Estimate?
For online lenders:

10. Is there someone I can talk to whenever I need to?

11. How are you keeping my info secure?
More questions for mortgage brokers:

12. Do you get paid in points or commission? There are four ways a mortgage broker can earn fees.

13. How much will you make on this loan from the lender?

14. Can you name some of your top lenders?
When you ask these questions, listen carefully to see if the lender is answering in a straightforward manner. When you ask about fees, does he include them all willingly? If you think they are trying to push you in a certain direction, go elsewhere. Be sure to get a Good Faith Estimate that identifies settlement costs.

Together with the Truth in Lending document, it will give you a look at the total amount you are borrowing and the annual percentage rate.

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