How do you choose a mortgage lender? What should you look for and what should you avoid? First, I want to mention that I know interest rates and fees charged are really important when selecting a lender. Before we get to fees, I want to make sure that you are talking to a lender that knows what they are doing and has a good reputation in the industry. How do you know if someone has a good reputation or not? Obviously, ask your REALTOR® but there are other signs to look for, too.
What gets a lender a bad reputation?
It typically starts this way:
- The lender takes very minimal information from a buyer and gives them a pre-qualification letter.
- Credit isn’t pulled and supporting paperwork isn’t reviewed until after the buyer is under contract on a house. It’s at this point that the lender finds something that might prevent them from providing a loan or it causes the buyer a lot of stress and chasing around paperwork.
Some of the banks that heavily advertise are notorious for doing this because people are understandably wanting instant and easy preapprovals – which is exactly what they’re giving. Ultimately what you want is a smooth process that ends in owning a house and an instant and easy preapproval often doesn’t lead to that because it’s not always a straightforward process. These quick looks can end up causing a lot of frustration when things are more complicated than they look on the surface. You need a lender who asks a lot of questions and asks for a lot of paperwork upfront. I get it – it’s a pain! It might even take a day or two instead of instant answers but it’s worth it because it saves so much time and money in the long run!
Good Faith Estimate
Once you’re comfortable that you’re working with a lender who is thorough and you have a legit preapproval, then start asking questions about rates and fees. Ask the lender for what is called a “Good Faith Estimate” which will detail out your payment and the closing costs. When you’re looking at this, there are some things the lender needs to include but they have no control over, such as estimated property taxes and homeowner’s insurance. If you just look at the bottom line of costs, this number may be deceptively high or low because it’s all a guess until you have a specific house in mind.
When you are comparing fees from lender to lender without a specific house, focus more on the fees that actually go to the lender. If you just call someone and ask, “What are your rates?” you’re only getting half of the story. Sometimes a lender will have lower rates because you are buying what they call “points”, which requires you to pay higher fees to get a lower rate. If you’re focused just on the rate, they can make that happen for you by increasing your fees, which may or may not be the best thing for you. You have to look at the whole picture.
If you are thinking that you’d like to have a great real estate agent to help ensure that everyone you are working is quality, please get in touch with us. We have people all over the country and can connect you with someone who is not only knowledgeable and experienced, but also a great personality fit for you. I hope this helps you on your ownership journey.