Choosing a Mortgage Lender
A lender is critical to the cost and success of your home purchase. For one thing, he holds the purse strings. For another, his 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, he needs to jump on it because rates can change like the wind. You are also relying on him to close the loan on time; you could lose a house if there is a hang-up for some reason beyond your control. And many fees are determined by the lender, fees that can be negotiable if you know what to ask.
Shopping for a lender requires a homework assignment:
- Know thyself. Before you even pick up the phone or turn on the computer, figure out what mortgage type you are looking for. Not all lenders handle all loans. You can be more selective if you know what you're looking for.
- Know thy 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 that you might need to enter your name and address to see rates. Or, you can submit a loan request in the Zillow Mortgage Marketplace anonymously (you do not need to enter your name, phone number, or address or Social Security number) and quotes and fees tailored to your situation will be sent back to you so you can compare between lenders' rates and customer reviews.
- Understand the players. Study the types of lenders and their advantages and disadvantages for your situation. Some lend their own money, and others find the money for you.
- 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 Good Faith Estimates, but they are also detailed earlier in the process in the Zillow Mortgage Marketplace.
But Where Are They?
As you can tell from the homework assignment, you are going to make this decision based on your individual needs and the costs. You are also going to base it on 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."
Often the choice starts with pre-approval. Remember, you should get a pre-approved loan before you shop for a house. You are free to shop around for a different lender after you get it, 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:
- Zillow Mortgage Marketplace.Zillow Mortgage Marketplace allows you to request personalized loan quotes anonymously, and get rates and fees, as well as customer ratings, in return.
- Agent referrals. 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 can refer you to some lenders they've worked with before. This is fine if you have an experienced agent who can vouch for the lenders. Good agents have several lenders they can refer you to, 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 hiccups. That's in their best interest as well as yours.
- Friend referrals. 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 he locked in the rate he promised; 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.
- Online sources. Many sites offer estimates from lending companies. Sometimes you need to give personal information (such as your Social Security number), but usually you can get a quote without having to talk to anyone. Other sites will have someone call you. There's no risk, until you sign a contract. Decide up front if you need to have in-person service; that will narrow your choices.
- Mortgage brokerage. If you don't have time to find a lender yourself, a broker can do it for you. Sometimes you pay him upfront, but usually the bank pays him. Of course, you pay in the end: It's just wrapped up in the interest rate.
- Your bank or credit union. You have your money there, so you probably trust it. The loan officer usually controls the loan (even if they resell it eventually) and has authority to make decisions on his own. That can be nice when time is short.
Many states have a requirement that loan originators be licensed, a process that often includes testing, as well as information on criminal history and bad credit on the part of the applicant. Check on your state government Web site to see if the state requires licenses and has a list of brokers who are licensed.