How to Find a Good Lender or Mortgage Company
Whether you are a first time home buyer, a seasoned home buyer, or a real estate investor, you will need a way to pay for your home purchase. You will need to learn how to find a good lender or mortgage company.
And unless you happen to have a good stash of cash, you will need to procure a loan, in order to finance your home buy. By far, the most popular way to finance a home is through a lender, or a mortgage company.
The mortgage industry is very large, and it includes many, many mortgage companies. So how do you pick one that will be fair with fees and interest rates, give you a good chance to be approved for a loan, will be there for you when you need it, and for the long haul?
Home loans are obtainable through various lenders. Commercial lenders, thrift institutions, mortgage brokers, mortgage companies, and credit unions. Home loans are likely the largest loan you will ever attempt to secure.
What you do before you obtain a home loan will determine to a large extent, your financial future. In fact, if you get a 30 year loan, which is the most common, your finances will be affected profoundly for a good part of your life.
Take your time, and be diligent with this process. If you shop around for the cheapest gas prices, which many of us do, how much more important is shopping around for the lowest interest rate, and lowest fees from a lender? It can mean hundreds, or thousands of dollars of savings to you.
You will need to do some homework. Ask family, friends, coworkers you trust, real estate agents, your accountant, and financial advisor to make a lender, or mortgage company recommendation for you.
You should consider 5 or 6 different mortgage lenders, and start comparing. You can then shop the lenders on your short list. Compare rates, fees, terms, and types of loans.
Ask about: Interest rate: The interest rate is the amount of interest that is charged on the loan.
APR Annual Percentage Rate: Expressed as a yearly rate, the APR includes interest, points, broker fees, and other lender fees.
Fixed Rate: A fixed rate loan is a loan that has the same interest rate throughout the entire duration of the loan, which keeps your mortgage payments steady. Easily the most popular fixed rate loan is the 30 Year Fixed Rate loan.
Next in popularity is the 15 Year Fixed Rate Loan. Also available is a 50 Year Fixed, a 40 Year Fixed Rate Loan, and a 20 Year Fixed. Some lenders offer all of these products, while some offer only certain loans.
An Adjustable Rate Mortgage, or an ARM, has a changing, or floating interest rate. An ARM, unlike a fixed rate mortgage, can fluctuate, depending on different economic, and market factors, and or a specific indicator it is tied to.
An ARM’s interest rate is normally significantly lower initially than a fixed rate mortgage due to it’s possibility of rising in the future. An ARM is riskier than a fixed rate loan, and is best used when the intended term of home ownership is short, or relatively short.
Two-step Mortgages: A two step mortgage will have the first time period at a certain percentage fixed interest rate, and the second period at a different fixed interest rate. For instance, the first 10 year term of the loan could have a fixed rate at 4%, and the second 10 year term may have a fixed rate at 5%.
Combination Mortgages: There are now mortgages available that combine a fixed rate term, and an adjustable rate term. For example, there are loans where the initial period is at a fixed rate, say the first 10 years, and for every year beyond that the rate is adjustable for the duration of the loan. There may be different combinations of the fixed period, and the adjustable period, depending upon the lender’s policies.
Balloon Mortgage: A balloon mortgage normally has a fixed interest rate for a certain duration, usually with small monthly payments, and a large amount or balloon due at the end of the loan period.
This can be a risky loan type, as it is easy to get in trouble when the balloon comes due, if the homeowner has not saved a sufficient amount of money to cover the balloon amount.
It is sometimes possible to renegotiate this amount due, into payments into a longer duration, but it will be at the lender’s discretion, and the terms will more than likely benefit the lender, not the borrower.
More and more people are going online to research products and services. Some online websites/companies will provide a helpful research service for you.
They have an up to date listings of many different loan companies, as well as their corresponding current interest rates, fees, and various types of loans available with different time periods, such as 10 year, 20 year, 30 year, or longer duration.
This can be an excellent way to look for the best loan, as you don’t have to leave your home to do it. You will save time, money, and have the ability to work with reputable, and competitive loan companies.
Or, you can research different mortgage companies, rates, and fees online, and be better prepared to deal in person with lenders, and loan officers.
Whether you choose the offline, or online route, or some combination of the two, you will also want a loan officer that is professional, thorough, and responsive to your questions, and needs. Word of mouth referrals are usually the best method to find a good loan officer.
Real estate agents usually work with 2 or 3 lenders, and have good relationships with others, as well. They know which lenders are trustworthy, reliable, and competitive, and they also know which lenders are not.
Realtors can steer you away from the problematic lenders, and refer you to those that have established, solid reputations in the industry. If in doubt, search a realtor out.
A mortgage broker may be the easiest way for you to research different lenders. These brokers can give you information on several lenders, and, if they have the ability to research many lenders, you can ask them to give you the lenders that have the lowest rates, fees, etc.
The Squeeky Wheel Gets the Grease
I have always believed that everything is negotiable. This has served me well through the years, as I have been able to realize discounts simply by asking. Sometimes a more strenuous negotiation is called for, but it is always worth a try to get a better price or deal.
Shopping for a mortgage is no different. The mortgage industry is very competitive, and I promise you that every mortgage lender seriously wants your business. They may be willing to reduce fees, points, or even the interest rate if you endeavor to negotiate it.
Wayne Gretzky, the hockey great once said,” I miss 100% of the shots I don’t take.” I also like, nothing ventured, nothing gained. So, whatever adage you want to use, it is always worthwhile to ask for a better price, or better terms. After all, you will never know unless you ask.
Laws to Protect You
The Equal Credit Opportunity Act, and the Fair Housing Act, two federal laws, are both designed to prohibit discrimination regarding credit.
The FHA, Federal Housing Administration, prohibits discrimination in every aspect of the real estate transaction, including making loans to buy, build, repair, or improve a place to live.
If your application for a loan is turned down, the lender must tell your the reason or reasons that it was denied. You also have the right to ask questions to the lender regarding the denial.
Consider enlisting the services of a real estate attorney. An attorney will break down the entirety of the loan process, and explain the loan paperwork to you in detail. There are excellent attorney services both offline, and online.
The extra expense of hiring an attorney could pay for itself in cost savings of the loan, and perhaps more importantly, for your peace of mind. Hard to put a price on peace of mind.
Finding a loan through a reputable lender is perhaps the most important financial decision you will ever make. Your home loan could easily be a part of your life for the next 30 plus years.
Ask family members, friends, your realtor, your accountant, or your financial advisor to recommend a good mortgage lender for you. Do you due diligence by going online, and comparing mortgage companies, and all the specifics of the transaction, including interest rates, terms, and fees.
Make sure also that you know your rights, so you can protect yourself against discrimination. You can obtain a loan either online, or in person. Don’t sign or agree to anything until you are sure you understand exactly what the loan you are agreeing to is all about.
If you aren’t clear on something, be sure to ask before hand. Once you sign on the dotted line, it may be too late to back out of the deal when your questions arise.
It may even be worthwhile to hire the services of a real estate attorney to explain things to you before you agree to the loan. There are excellent real estate attorney services both offline, and online.
Now you know how to find a good lender or mortgage company. You are well on your way to accomplishing the most important step in the home buying process.