How to choose a lender

       Picture this: you’re ready to start your home search and don’t have several hundred thousand dollars in your bank account to purchase one. Before looking at any homes, you need to figure out how much you can afford and the best type of loan that suits your needs. Seriously… we cannot emphasize enough to postpone searching for homes until you know exactly what your budget is; if you look at ones too far above your price range, you could be disappointed with the types of homes that are in your price range. Instead of leaving the most important purchase up to chance with a lender you don’t know, we’re here to give you tips on finding a lender that works for you by working with you. 

       The most commonly known home loans are Conventional, FHA, and VA. If you’re asking yourself which one is the best for you, don’t tire your mind trying to figure that out; this is where a lender comes in. A lender can assess your finances and qualifications to see which loan best suits your home purchase needs. There are also different types of lenders, and we’ll discuss the two most common for residential home purchases:

1. Direct Lender

• This is when you go to the bank or a credit union and they provide the mortgages directly through their association. You may want to consider taking a look at your bank or credit union’s available loan programs as some lending facilities have member-only deals. Keep in mind that rates and terms can vary between these direct lenders. You do not have to go through your own bank to get a home loan.

2. Mortgage Broker 

• These lenders are independent of a bank or credit union. They are licensed brokers who shop different lenders on your behalf and also charge a portion of the loan amount for their services. However, this doesn’t mean they are going to be more or less expensive. These types of lenders also don’t fund the loans similarly to a Direct Lender. You would choose this option if you did not want to shop for lenders on your own.

3. Hard Money Lender 

• This is not one of the common lenders to use for residential purchases, but we wanted to give you an example of another type of lender to show how vast they can vary. A Hard Money Lender is typically a private investor or individual and they look at the property’s value to protect their investment. The two types of lenders listed above do look at the property’s value, however your personal financials are mainly their concern. Hard Money Lenders also have shorter term loans with higher interest rates. These loans are often used by developers because they are short term loans the bank won’t approve. Most real estate investors using these loans are purchasing a home in poor conditions, and the bank will not lend on something that is high risk. The more you know!!

If you’re interested in furthering your knowledge on other alternative loan types or wondering if an alternative loan would work better for your real estate endeavors, call us to discuss!

       Now that we’ve briefly reviewed the different types of lenders, it’s time to start shopping for one. There are a few items you can look for when shopping for a lender that specifically has to do with the rates and terms of your loan. You’ll want to receive a Good Faith Estimate (GFE) from the group of lenders you’re hoping to choose from. The GFE can be provided by any type of lender and it is a quote for the lender’s rates & fees. Keep in mind that if you’re comparing rates and see an exceptionally good rate (i.e. a low rate), you have to understand why. Are they charging you additional fees that cover the gap the low rate is providing so they seem more competitive than they are? Look beyond the rates at the additional costs and what your monthly payment will be at the end of the day. Different lenders may also have grant or down payment assistance programs for you to choose from. Check out the programs we discussed in a previous blog article. Buyers beware of lenders that solely get business online as their source of leads is paid for and unlimited. If they don’t do a good job for you, it does not impact them from continuing to do a large amount of business. If you’re looking at homes or loan programs online and see a button prompting you to ‘Contact a Lender’, you will not only be connected to someone who may be unreliable, but you’ll also start receiving an influx of phone calls and emails from other online lenders competing for your business. We promise you’ll get tired of those phone calls quickly. Choosing a lender that is referred to you by your realtor, someone you know, or your bank can insure you’ll be working with someone who sees you as more than just a paycheck. 

       That being said, it’s not just about the rates and terms of the loan, or where you find the lender that you should be considering, but also the type of person the lender is and how they work to get you to the closing table. We typically suggest a lender who is local to the area you intend to purchase a home in as they can have a better understanding if an obstacle needs to be tackled during your transaction (ex. Appraisal issues, title requirements, building-specific requirements, condominium/HOA association requirements, and overall rules and regulations of the township, city, or county). A sign of a good lender is if they provide you with a cell phone number. This doesn’t mean that lenders who do not provide a cell phone number can’t be good, but it does mean that you can’t necessarily reach them outside of standard business hours and oftentimes real estate is not a 9-5, M-F industry. If you’re looking to submit an offer over the weekend and need an updated preapproval letter to submit with the offer, and you can’t reach your lender, you might lose the home. You also want a lender who you’re comfortable with; someone who vibes with you and looks out for you. You want to make sure you’ll be happy working with this person for the several months it takes to find and close on a home. Below are bonus questions you should ask lenders to get a better understanding of their processes and how they will be working for you:

1. ‘How long can the process take for my specific type of loan?’

• This will help determine a closing date. You will need that when submitting your offers. Lender processes not only vary by the type of loan, but also the lending facility. Recently we’ve encountered two different lenders from two different facilities both processing an FHA loan. One lender needs at least 45 days to process the loan for settlement, while the other is managing to close an FHA loan within 2.5 weeks.

1. ‘Who will I be speaking to throughout the process?’

• Some lenders have assistants or processors who you may be speaking with more than the lender themselves. It’s always best to have everyone’s contact information and roles up front. 

2. ‘What credit qualifications do you require?’

• An answer to this question can ensure you are well prepared for any last minute document requests. 

3. ‘When should I lock in my rate and will you warn me if you feel I should lock in my rate?’

• Especially in a time like this where interest rates are increasing consistently, you want a lender who can and will advise you on when to lock in your rate in relation to your home purchase and how long it will take to close. You typically have 30-60 days until you have to pay to extend your locked rate. 

4. ‘What happens if my settlement is postponed and will I have to pay for an extension at that rate?’

5. ‘Who will I contact if you’re away? Do you have any upcoming out-of-office days where I will be unable to reach you?’

• We’ve had several lenders go on vacation without warning us or their buyers! In situations like these, the file is typically handled by the lender’s supervisor until they return. 

       Choosing a great lender to help you with your home purchase is just as important as choosing a great realtor to help find you a home. If you would like to discuss home loans or would like recommendations for lenders, give us a call!