If you are going to need a loan for your new Real Estate purchase or even a refinance, choosing the right lender is of paramount importance. If you don’t do your homework it could cost you thousands of dollars in additional loan fees and/or closing costs. Or if you don’t get a good interest rate you could pay more every month in extra interest expenses over the duration of your loan which could add up to thousands of dollars. We have sponsored this page to provide you with our "Lessons Learned" and a few insider tips on how to work with lenders before and after you commit to work with them.
Part of the Federal Truth in Lending Act of 1968 stipulates that lenders must provide borrowers with a "Closing Cost Estimate" (CCE) formerly call a "Good Faith Estimate" (GFE). On the CCE the lender must disclose the interest rate, the annual percentage rate (APR) and all of the estimated fees and costs that will be associated with your loan. Lenders are required by law to provide these to borrowers after they have pre-approved their loan but many loan shoppers don't know they can obtain a CCE or GFE Quote before deciding on a loan program or a lender.
Here are few things to do before you actually start shopping for a lender:
- Find out your credit score (or score range) in advance for all borrowers on the loan.
- Determine what amount of a down payment you have and what percentage that is of the estimated purchase price. The more of a down payment you have the better loan program you will likely qualify for. If you need a 100% loan, are considering purchasing a rental property, a manufactured home or bare land, be prepared to tell each lender so they can quote the appropriate loan programs so you will be comparing apples with apples.
- Consult with us or your Realtor about what general loan type or program may be best for your specific situation. Most Realtors know a lot about different loan programs and can save you some time figuring this out. Also, great first time homebuyer’s programs almost always exist.
- Contact a minimum of at least 3-5 lenders. No single lender will always have the best deal. Extra effort will pay off if you are willing to shop!
- Call each lender for a verbal ballpark quotation on loan origination fee and interest rate.Do not give them your Social Security number or let them pull your credit yet. This can reduce your credit score! Give them your estimated purchase price, credit score, down payment amount, reason for buying the property (i.e. rental or own residence) and then have them give you a Good verbal quote over the phone. Pay attention to and keep track of the following cost areas:
Loan Type – Is the loan an Adjustable Rate Mortgage (ARM), a 30 or 15 year Fixed, does it have a pre-payment penalty, a requirement to owner occupy permanently or a ballon payment?
Interest rate – Is the interest rate fixed? If not, how long until it adjusts, how much can it adjust and how often and what mortgage rate index is the rate tied to?
Fees – What is the loan origination fee, mortgage broker fee, underwriting fee, processing fees, etc. A CCE will sort all the fees out for you, but until you get that far just stick to the big ones.
Title and escrow fees - are set by law so make sure you don’t need to compare these fees as they are generally set based on the sale price or loan amount, what your lender will require in reserves and they will fluctuate depending on the day of the month your loan closes. Watch the Loan Fees!!! You will find that this quickly sorts out the best as you go. Make sure that there are no pre-payment penalties tied to your loan unless you getting something in exchange for this condition and are absolutely sure you can live with it. Pay the most attention to the “Items Payable in Connection with Loan” section of the Closing Cost Estimate Form.
- When you have spoken with all the lenders you wish to, call back the ones with the best verbal quotes and/or the ones you feel are going to give you the best service and ask them to send you a "Closing Cost Estimate" (CCE). Due to constantly fluctuating interest rates you will want to get all these the same day. You may also request multiple CCE's for different loan options from each lender to see the details and differing costs of each. Generally a good lender will help you sort out what is best for you and will net you the lowest payment and what extra you may have to pay for a better payment. Then figure out how long it will take to pay yourself back for that fee in the long run. If it is 1-2 years or less then it may be a good deal.
- When you decide on a lender, tell them that you will expect the CCE to be accurate at closing. Proceed to let them pull your credit and go forward with a formal application for your loan. If you ever feel that something is not right or if you have questions, call your Realtor and get a second opinion. If you haven't signed at the title company, it is generally never too late to change your loan although you may have to reimburse the old lender for a few costs depending on what stage you are in the loan process.
A Word of Caution... Most National Lenders (i.e. Quicken, Countrywide, Lending Tree, Ditech, etc) that you see on TV ads actually have some of the worst lending rates & fees that you will find in the marketplace most of the time, even if they tell you otherwise. It stands to reason, all of the advertising they have to pay for. Don't fall for their deceptive ads! And some won't even give you a rough rate quote until you give them your Social Security Number and fill out an application. THANKS, BUT NO THANKS!